Seeking Disclosure of Return Information in Tax Court Case

On April 5, 2017, the Tax Court rendered a fully reviewed T.C. opinion in the case of Mescalero Apache Tribe v. Commissioner, 148 T.C. No. 11.  We do not often have two disclosure cases in one week.  It doesn’t get much better than this.

After President Nixon tried to run roughshod over the tax information of his enemies and Congress reacted with the new, extremely beefed up section 6103 in 1976, Chief Counsel, IRS soon thereafter created the Disclosure Division.  As you might imagine, new attorneys did not flock to that Division as their first (or second or third) choice.  So, Chief Counsel’s office created a rule that if you worked in the Disclosure Division for three years, you got first choice on any opening in the country.  That rule suggests how sought after a career focused on the disclosure laws was, at least with lawyers in Chief Counsel’s office; however, the disclosure provisions, despite their non-glamorous reputation, contain many important policy issues a number of which have split the circuits.  The Mescalero Apache Tribe case demonstrates one of the interesting issues that can lurk in the disclosure provisions.


Before I move on to the disclosure issue, I want to pause and discuss an issue that the Court discusses in a footnote – appellate venue in cases brought by Indian tribes.  The issue of appellate venue in Tax Court cases has importance to the outcome of the case at the trial level because of the Golsen rule under which the Tax Court will follow the law of the circuit to which the case will be appealed.  The failure to update the appellate venue rules in 1998 when Congress created several new ways to obtain Tax Court jurisdiction led to some interesting issues we have blogged here and here.  In this case the Tax Court notes that the rules of appellate venue discuss individuals and corporations but not Indian tribes which have a sovereign nation like status.  So, the appellate venue for a Tax Court case involving a tribe put the court in uncharted waters.  It defaulted to looking to the law of the 10th Circuit which is the circuit where the tribal lands of the tribe appearing before the court are located.  I suspect that most readers will have few cases in which they represent an Indian tribe in Tax Court but the case points out in yet another context a hole that exists in the appellate venue of the Tax Court and how that hole can impact the resolution of the case when a circuit split exists on an issue.

The taxpayer is an Indian tribe that hired workers.  At issue in the Tax Court case is the classification of those workers as independent contractors or employees.  The tribe classified the works as independent contractors and the IRS seeks in the case to obtain a determination that the workers were employees.  If the IRS wins this argument, the tribe would owe the taxes on the workers under the theory that its failure to properly classify the workers and consequent failure to withhold taxes with each payment caused the non-payment of the taxes.  Section 3402(d) allows a company deemed to have employees rather than independent contractors to avoid the additional liability to the extent that the company can show that the workers independently paid the taxes to the IRS.  This offers a significant way out of what could be a heavy tax liability; however, there is one catch – the payment by the employees of their taxes is return information under IRC 6103 and return information, like tax returns themselves, comes under the broad umbrella of the protection from disclosure.

The structure of 6103 basically sets out the broad general rule at the outset that returns and return information is covered by the disclosure provisions and cannot be disclosed by the IRS.  The lengthy code section then has a multitude of exceptions.  At issue in this case is the application of one or more of the exceptions.  The case is a slightly unusual disclosure case in that both the IRS and the taxpayer before the court know the names of all of the individuals who worked for the tribe.  So, the tribe does not want taxpayer identity information but simply whether the identified individuals paid their taxes for the years at issue so that the tribe knows if the defense available in 3402(d) protects it.  Before seeking the information in discovery in the Tax Court case, the tribe sought to gather the information from the individuals who previously worked with it.  Because of time and mobility of the work force and maybe because some of the former workers did not want to provide the information, the tribe was unable to get information about all of its former workers.  So, it sent a discovery request to the IRS seeking to obtain information about a group of identified former workers and whether they paid taxes on the compensation they received.  The IRS objected to the request citing the general rule that it may not disclose this return information.  The tribe brought an action to enforce discovery citing to an exception in 6103(h) and the Tax Court, in a fully reviewed, unanimous opinion, holds that the tribe is entitled to the information through discovery.

This is a big deal for taxpayers who need information from the IRS in order to defend themselves in a tax matter.  The decision here will not open the IRS records in every case but it does provide a model for seeking information in Tax Court cases.  Because the Tax Court had not previously addressed this issue, it did so here through court conference.

As the Tax Court examined the issue of whether 6103(h)(4) provides an exception to the general rule of nondisclosure, it found the circuits were split.  The 5th Circuit held that this subsection applied to disclosures to certain federal officers because of the title of the section; however, the 10th Circuit held the 6103(h)(4), unlike earlier subparagraphs of the subsection,” speaks specifically of disclosure in a judicial or administrative tax proceeding with no indication that disclosure should be limited to officials.”  The Tax Court found that most courts had followed the 10th Circuit; however, the fact that (h)(4) created an opportunity for disclosure in a court proceeding did not mean that its language required or allowed disclosure in this circumstance.  So, the Tax Court had to look further at the statute.  Subparagraph (h)(4)(B) refers to returns and return information and another part refers only to returns.  Without getting into a significant discussion of returns and return information, it is important to understand that these are two different classes of information protected by 6103 and the tribe wants return information.  Two circuits found the subsequent reference to returns which omitted the phrase return information to create a limitation on the disclosure of return information.  The 10th Circuit had two opinions which, in different contexts, did not impose that limitation.

The Tax Court avoided that issue by looking at 6103(h)(4)(C) which allows for disclosure of both returns and return information; however, it limits disclosure to situations in which “return or return information directly relates to a transactional relationship between a person who is a party to the proceeding and the taxpayer which directly affects the resolution of an issue in the proceeding.”  So, the Tax Court needed to decide if the employer/worker relationship is a transactional relationship and whether the return information of the workers directly relates to this relationship and whether “information related to the transactional relationship directly affect(s) the resolution of the issue in this case.”

The court found that the relationship met the necessary test, that the return information directly relates to this relationship and that the return information directly affects the resolution of an issue in the case.  So, it found the return information disclosable but that did not end the matter because the IRS objected that even if it is disclosable “it is still not discoverable.”  The IRS pointed to the fact that the tribe bore the burden of proof that the workers paid their taxes.  This seems like a cruel argument if the IRS has the information that will allow the taxpayer to win their case and does not have to give it to the taxpayer because the taxpayer must prove their case.  The Tax Court found that just because the tribe had the burden of proof does not mean that discovery cannot be had of the IRS citing to Tax Court Rule 70(b) which says parties can discover information “regardless of the burden of proof involved.”  Keep in mind that sometimes the IRS has the burden of proof and it should be careful of arguments like this that could limit its ability to obtain information from the taxpayer through discovery.

In a case like this the IRS represents the interest of the 70 individuals whose return information will come out even though they have no voice in the matter.  The IRS defense of disclosure makes sense but so does the Court’s determination that the information meets the exception in the statute.  Failure to allow the information to come out could cause the tribe to pay a tax which its workers already paid.  The competing policy interest of the protection of the worker’s return information and the tribe’s interests properly fall on the side of preventing the tribe from having to pay a tax it should not owe.  The case does not talk about how the return information of the workers might be protected as the information is disclosed but that issue is present.

Venue on Appeals from Tax Court Attorney Sanctions

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

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

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

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

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


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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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


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

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

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


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

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

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

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

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

Whistleblower Award and Disclosure Cases

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

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

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

CDP, Innocent Spouse, and Interest Abatement Cases

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

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

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

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

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

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


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


Final Observations

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

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








Congress Considering Procedural Legislation

There are some interesting developments percolating in Congress. In addition to a hearing today which features former Senators Bradley and Packwood and is meant to highlight lessons on tax reform from the 86 Tax Reform Act, Congress is considering a few procedural issues in less controversial bills. Specifically the Senate Finance Committee has scheduled for tomorrow a mark up of a number of relatively noncontroversial measures, including a grab bag of procedural provisions.

The Joint Committee has summarized those measures, under a title that pegs the changes to proposals relating to access and administration of the Tax Court. I have not yet seen language in the bill, but there are three items in particular that have received a fair bit of coverage in Procedurally Taxing over the past year. These items relate to venue of appeals of CDP cases, interest abatement disputes and the fallout from last year’s Kuretski litigation.



One of the proposals addresses the venue issue for CDP and innocent spouse cases we have discussed previously in the context of last year’s DC Circuit Byers case. The Joint Committee summary states that the provision “amends section 7482(b) to clarify that Tax Court decisions rendered in cases involving petitions under sections 6015, 6320, or 6330 follow the generally applicable rule for appellate review. That rule provides that the cases are appealable to the U.S. Court of Appeals for the circuit in which is located the petitioner’s legal residence in the case of an individual or the petitioner’s principal place of business or principal office of agency in the case of an entity other than an individual.”

I am not sure that I agree with the notion that this is a clarification of current law; seems to me the DC Circuit’s analysis in Byers is persuasive that venue absent a legislative change for CDP cases not involving liability issues is the DC Circuit irrespective of the petitioner’s residence. Be that as it may, this will bring some certainty into an area that could use some certainty.

Interest Abatement

The Joint Committee also summarizes a proposal that would provide that a taxpayer can petition Tax Court even in the absence of a determination 180 days after an abatement request; a separate proposal would allow a taxpayer to elect small case procedures for abatement requests when the “total amount of interest for which abatement is sought does not exceed $50,000.”

Kuretski , or Where Does the Tax Court Belong?

We and others have discussed Kuretski and related cases on numerous occasions this past year. The Joint Committee indicates that the bill Senate Finance is considering would purport to essentially attempt to overturn the DC Court of Appeals holding that found (at least for some purposes) that the Tax Court is part of the Executive Branch. Here is the entire language (absent footnotes though we did enjoy that the Joint Committee Report dropped a footnote to Procedurally Taxing in its description):

Present Law

The Tax Court was created in 1969 as a court of record established under Article I of the U.S. Constitution with jurisdiction over tax matters as conferred upon it under the Code. It superseded an independent agency of the Executive Branch known as the Tax Court of the United States, which itself superseded the Board of Tax Appeals.

As judges of an Article I court, Tax Court judges do not have lifetime tenure nor do they enjoy the salary protection afforded judges in Article III courts. They are subject to removal only for cause, by the President. The authority to remove a judge for cause was the basis for a recent unsuccessful challenge to an order of the Tax Court, in which the taxpayer claimed that the removal authority was an unconstitutional interference of the executive branch with the exercise of judicial powers. In rejecting that challenge, the Court of Appeals for the District of Columbia held that the Tax Court is not part of the Article III Judicial Branch and is an independent Executive Branch agency, while acknowledging that the Tax Court is a “court of law” for purposes of the Appointments Clause.

Description of Proposal

The proposal clarifies that the Tax Court is not within the Executive Branch.

Effective Date

The provision is effective upon the date of enactment.

I will reserve comment on this proposal until I see the bill.

For those interested in this issue, and the confusion as to where the Tax Court fits, I commend readers to an excellent piece called Where the Bough Breaks: The U.S. Tax Court’s Branch Difficulties by Professor Leandra Lederman in the recent ABA Tax Section Newsquarterly. Professor Lederman is one of the (if not the) top tax procedure scholars in the country. This entertaining and well-researched piece shows how schizophrenic the government itself has been in describing where the Tax Court belongs.





Summary Opinions for 1/6/15-1/23/15

Les and Keith ditched me for the end of last week, while they both attended the ABA Tax Section Meeting (much more on that to come).  Thankfully, Carlton Smith provided two guest posts.  One was on unpublished CDP orders and how those can implicate substantive and other important procedural matters, and a second on his victory in the Volpicelli equitable tolling case out of the Ninth Circuit.  Thanks again to Carl for both of those and a big congratulations on the important victory.

To the other procedure:

  • A couple cases on administrative costs are first up.  First Milligan v. Comm’r, where the IRS clearly did a poor job handling the taxpayer’s appeal, filing it incorrectly, not acting promptly (probably being difficult to contact), and requiring the Taxpayer Advocate to intervene.  Based on Section 7430(f)(2), the Tax Court correctly held that the IRS CP 2000 notice and Letter 105C denying the refund were not the “position of the United States” as required under the statute.  For the statute, the “position” only arises under a notice of decision by Appeals or the notice of deficiency.  Prior to that date, the IRS’s position and actions don’t count for fee shifting, and fees are not available.
  • Switching to a taxpayer win, the District Court for New Hampshire in United States v. Baker held that the Service was not substantially justified in its position that an ex-wife’s real estate was subject to a lien from her ex-husband’s tax liability because the divorce decree (and/or deed) was not recorded transferring the property to the wife pursuant to the divorce (which occurred before the lien arose).  We covered the underlying case in SumOp last year here.  The District Court found the position was contrary to the First Circuit’s law on the topic and awarded costs to the real estate owner.
  • Moving to a different topic, Steven Mopsick published “IRS to Issue More Tickets to the Tax Court in 2015” on LinkedIn and his blog last week, which discusses changes to Letter 5262.  Mr. Mopsick indicates that the changes to the document make it clear that if a taxpayer isn’t prompt in following requests for information (Form 4564), the taxpayer will no longer be able to remove the issue to Appeals in nondocketed cases, and will instead get a 90 day letter directing him to the Tax Court (where he could go to Appeals, but as a docketed case).  I have not looked into this further than Mr. Mopsick’s post.  In the post, it seems to indicate this is being done to reduce the Appeals backlog.  If this is correct, it will be interesting to see if there is an increase in small tax court cases over the next year or two, and a corresponding decrease in Appeals cases.  If, however, Appeals cases decrease, while Tax Court filings remain the same, it may indicate many taxpayers are not receiving review that they otherwise may have obtained.  Given the frequency with which the IRS is incorrect and Appeals high success rate in settling matters (when someone can actually review the matter), this would be unfortunate.  It would be interesting to see how often Form 4564 is issued, in what types of matters, and for what income groups.  Similarly, it would be interesting to see who is not responding.
  • The District Court for the Western District of Wisconsin has tossed a complaint by the Freedom from Religion Foundation (I wonder what percentage of its constituents are ten year old kids who don’t want to go to church every Sunday), which sought to block the IRS from granting churches and religious organizations exemptions from reporting requirements under Section 6033.  FFRF claimed that the Code section violated the establishment clause and the equal protection clause.  FFRF lost a similar case in November of 2014 regarding parsonage allowances.  The District Court, largely following the 7th Circuit, found that FFRF did not have standing, as it had never sought the exemption.
  • The Tax Court, in Lee v. Comm’r, denied the government’s motion for summary judgment on a taxpayer’s challenge to its lien imposition for failure to serve letter 1153.  The Court stated that whether the letter was served was a subject to a genuine dispute as to a material fact, and, further, whether the letter was properly issued was  a requirement of the statute that the Court would review regardless of whether the taxpayer raised the issue in his CDP hearing.
  • Last year, SumOp covered the Julia R. Swords Trust v. Comm’r, a Tax Court case discussing transferee liability and declining to apply the federal substance over form doctrine to recast a transaction being reviewed under Section 6901.  The case, and various related cases, have been appealed by the Service to the Sixth Circuit.  In December, the trustees were successful in moving venue to the Fourth Circuit.  The Sixth Circuit found both circuits could be the appropriate venue.  The Court noted the Service sought review in the Sixth Circuit because it had not held on the underlying question (at least not against the Service).  Most of the action in the case had occurred in Virginia (not in the Sixth Circuit). The deficiency notice was issued in Virginia and the tax court petition was filed in Virginia, where the case was decided.  The Court noted that the Service conceded venue was appropriate in the Fourth previously, but that did not preclude venue in other locations; however, the trustees had relied upon the venue statement in filing their petitions to the Tax Court.  As such, it found the Fourth circuit more appropriate.  This could be a slight blow to forum shopping for the Service, and perhaps taxpayers.  I couldn’t find the case for free on line. Sorry.
  • The University of South Dakota has a football program!!!!!  I had no idea – It is DI also. The program seems pretty terrible at football, but apparently some of its former players are really good at committing tax fraud.
  • Jack Townsend’s Federal Tax Crimes Blog has the creepiest headline of the year, Foot Kissing Chiropractor Sentenced for Bribing IRS Agent.  I have two takeaways from the post. First, don’t try to bribe the IRS, you will probably go to jail.  Second, don’t try to bribe the IRS after admitting to being a weirdo, you will go to jail, and all kinds of news outlets and bloggers will circulate posts about you for the world to see.
  • In what appears to be a really terrible case, the district court for the Southern District of Ohio has upheld delinquency penalties against an estate for failure to timely file and pay estate taxes in Specht v. United States.  The executor of the estate was a high school educated homemaker who was around the age of 73.  She did not own any stock, and had never been to a lawyer.  When her cousin died, she retained her cousin’s lawyer, Mary Backsman, who had been an estates lawyer for decades and was well respected.  Ms. Backsman was also suffering from brain cancer at the time, and did not disclose this to the executor or various other clients.  The attorney claimed to be doing various tasks, including obtaining extension of time to file and pay tax.  She also claimed to be contacting UPS for assistance in selling a large amount of UPS stock, and handle various other requirements.  None of these tasks were actually done.  Eventually, the executor realized, and fired the attorney and sued her for malpractice.  Unfortunately, the attorney had similar issues with various other clients.

The executor hired a new attorney, filed the estate tax return, and paid all tax due.  The IRS imposed a huge amount of penalties and interest. Due to the above facts, the executor argued the failure to file was due to reasonable cause and not willful neglect.  Unfortunately, based on Treasury Regulation 301.6651-1(c)(1) and Boyle, the executor had not exercised ordinary business care, as reliance on an attorney to file does not remove the executor’s obligation to ensure the return is timely filed and the tax paid.  The Court stated the executor did not need to be an expert to determine the due date.  I’ve shared my frustration with this line of cases repeatedly in the past, but I do somewhat understand why the rule is crafted in this matter.  I would be interested to know how the malpractice case panned out.  The coverage may have a maximum payout amount, and if there were a bunch of these cases, the various clients could be dividing up a limited pie.  In theory, the executor could be held liable to the beneficiaries for anything not recouped.  Any result where the executor ends up responsible seem completely inequitable to me.

  • I’m not a fan of Hartland Management Services Inc. v. Comm’r either, which is a recent Tax Court case reforming a Form 872 that the IRS screwed up.  Just when you think you get lucky, with the IRS completely blowing something, the Tax Court comes in and bails them out.  Without getting too far into the facts, the taxpayer and various entities were being audited for multiple years.  During the audit, the Service needed to extend the statute for assessment to continue discussing the matters.  On the Form 872, the Service included the extended date as the date of the return being extended (so the form effectively extended the statute for assessment on a return that wouldn’t have been filed yet or would never be filed).  The Service and the taxpayer continued to discuss the matter, and eventually the Service assessed tax.  The taxpayer contested the validity of the assessment, because the Form 872 did not state the year of assessment.  The Court found a mutual mistake of fact, which was evidenced by the taxpayers’ actions before and after the signing of the Form 872.  Because of the mistake, the Court reformed the document to extend the appropriate year.  I wonder if the taxpayers had contemporaneous notes indicating they were happy to sign because of the IRS error, and then immediately ceased negotiations if the Court would have held differently.  Then it would have arguably just been an IRS error.  Although I’m not sure I can create a winning legal argument against this holding, it does seem there are a lot of situations where a taxpayer could make a similar error, which was accepted by the IRS, that would never be reformed to save the taxpayer.  For those interested in learning more about this topic, Saltzman and Book touches on contract principles applicable to Form 872 in the newly rewritten Chapter 8.08[4][b].

Unpublished CDP Orders Dwarf Post-trial Bench Opinions in Uncounted Tax Court Rulings

In this post, Carl Smith builds on Keith’s prior post discussing Tax Court bench opinions. The fascinating post discusses how non-precedential CDP orders may implicate substantive issues and matters of great practical importance to taxpayers, some of whom are unrepresented and in need of legal assistance.

The Internal Revenue Code directs TAS, in its annual report, to “identify the 10 most litigated issues for each category of taxpayers, including recommendations for mitigating such disputes”. Section 7803(d)(2)(B)(X).  When the statute was enacted in1998, the Tax Court had not yet put its opinions on line.  But, it shortly thereafter put them on line, making T.C., T.C. Memo., and T.C. Summary Opinions searchable.  Previous to adding T.C. Summary Opinions, only the IRS and the Tax Court (and the particular petitioner involved) knew of T.C. Summary Opinions.  Part of why the court made T.C. Summary Opinions searchable — notwithstanding their lack of precedential value — is the court thought it unfair that the IRS, in effect, had a secret, monopoly library of T.C. Summary Opinions to look at, while the taxpayers did not.  The court wanted to level the playing field.  In TAS’ annual reports to Congress since 1998, out of the Tax Court, only T.C., T.C. Memo., and T.C. Summary Opinions have been counted as identifiable litigations.  As we all know, just because something is not precedential, though, doesn’t mean people don’t want to read it for tea leaves when the situation comes up again.  That’s why private letter rulings are also published these days (at least after persistent Tax Analysts lawsuits).  In a recent post, Keith noted that after June 17, 2011, the Tax Court has been posting on line all of its orders and bench opinions and making them searchable.  Keith recently examined the surprisingly large number of bench opinions that the court has been issuing.  He found 222 in a roughly two-year period.  Not only do I now think it appropriate to include non-precedential bench opinions in litigated cases for purposes of TAS’ annual report, but I also think that non-precedential CDP orders on motions for summary judgment or that result in a contested remand should be published. My research indicates that such CDP orders dwarf even the number of T.C. Memo. Opinions issued each year.  Are we really giving Congress the true litigation picture by excluding these bench opinions and CDP orders?


In 2014, there were 24 T.C. opinions issued from January to June and 21 opinions issued from July to December.  There were also 259 numbered T.C. Memo. Opinions, and 115 T.C. Summary Opinions.

According to the 2014 TAS annual report (which covers cases issued in the period from June 1, 2013 to June 1, 2014), out of all courts together, there were only 731 “litigated tax cases” that TAS reviewed. TAS reported that litigation of CDP cases had been falling, with only 105 cases in 2013 and 76 cases in 2014 – leaving CDP no longer the first-most, but now the fifth-most litigated issue in tax cases. NTA 2014 Report, Vol. 1, pp. 423-425.

Now let’s alter TAS’ math: Taking Keith’s bench opinion figure and dividing it by two (his analysis covered 2011 to 2012, though I am not sure it included bench opinions issued before June 17, 2011), one can project that there were likely also about 110 bench opinions issued last year.

I did an order search for orders issued from 1/1/14 to 12/31/14 using the following words: “(summary judgment or remand) and (6330 or 6320).” This search turned up about 300 orders (12 pages of 25 cases per page).

Most of these orders are grants of IRS motions for summary judgment — but with multipage descriptions of (1) the facts, (2) the legal standards for summary judgment (e.g., Florida Peach Corp. v. Commissioner, 90 T.C. 678 (1988)) and CDP review (e.g., Sego v. Commissioner, 114 T.C. 604, 608 (2000)), and (3) application of the law to the stated facts to reach a ruling. These orders are for all intents and purposes like published opinions and could easily have been issued as T.C. Memo. or T.C. Summary Opinions, unless the judges are deliberately evading the Chief Judge’s review function for opinions found at section 7460(b).  That’s an interesting question for Chief Judge Thornton to consider.

In the vast bulk of the orders, the taxpayer is told that he or she can’t challenge the underlying liability (if the taxpayer tried to), and he or she loses on collection alternatives either because the taxpayer (1) is not current on paying and filing, (2) never provided a requested Form 433-A, or (3) never requested a specific collection alternative (i.e., a particular installment agreement or offer in compromise).

Still, in a significant chunk of the rulings, the IRS loses the motion, and, sometimes a remand is ordered.  This usually comes after some highly critical comments from the judge on what seems lacking in the administrative record or in the Settlement Officer’s behavior.  My hunch is that some of these ordered remands result in settlements so the cases never again return to the judges for a regular ruling.  For those of you who are tired of reading CDP T.C. Memo. and T.C. Summary Opinions where the taxpayer loses and so conclude that Tax Court CDP review is a waste of time, I suggest you examine some of these orders where the court directs a remand.

Indeed, within the orders, you will also find additional remand orders requested by IRS attorneys themselves before a court even had to rule.  The IRS attorneys were too embarrassed to let the judge see the record in the current, inadequate or illogical state.

Of the 300 or so CDP rulings I uncovered, no doubt a few score of them would not meet my criteria for counting as litigations. In some cases, my search picked up IRS voluntary remands, where the judge said little but granted the order. That’s not enough of a fight to me to count as litigation. Also, if an order was issued in three consolidated dockets, it shows up three separate times in my search. That’s why some human review of the orders would be needed.

But I just don’t see the wisdom of excluding contested CDP summary judgment and remand orders when, by any count, they both dwarf bench opinions and approximate the total number of T.C. Memo. Opinions issued each year.

The Kurko Rulings

I wanted to give one example of a situation where both a denial of a motion for summary judgment and a later bench opinion ordering a CDP remand were issued and provided some jaw-dropping pro-taxpayer findings and holdings.  It seems somewhat arbitrary not to count each of these orders as litigations for purposes of the TAS report, as they get into quite interesting issues.

In Kurko v. Commissioner, T.C. Docket No. 24040-13L, Judge Gustafson was faced with an IRS motion for summary judgment as to some years and a motion to dismiss as moot as to other years in a CDP case.  In a 9-page single-spaced order issued on Nov. 12, 2014, and which Stephen mentioned in the Summary Ops. blog posting of November 25, 2014, Judge Gustafson rejected the contention that there were no material facts in dispute. The judge thought there was an issue about whether a late-filed original return for 2008 filed in 2013 (during the CDP hearing) and showing a large overpayment could have been used to pay down the CDP assessment for the 2009 year because the late claim might have qualified for the section 6511(h) tolling for a person who was financially disabled. The judge thought that it was possible that Ms. Kurko had made it clear enough at the CDP hearing that the Settlement Officer should have realized that this exception might apply and that the SO should have helped explain to the taxpayer how to get the appropriate doctor letter, if possible, to confirm section 6511(h) tolling under Rev. Proc. 99-21. (Judge Gustafson knew that, by the time of the Tax Court proceeding, Ms. Kurko had, in fact, been awarded SSDI – presumably with the assistance of a doctor’s letter similar to the one needed for Rev. Proc 99-21.)

After the motion was denied, the Kurko case proceeded to trial a few weeks later, and Judge Gustafson held, in a 13-page bench opinion (formally issued on Dec. 30, after being read into the record on Dec. 16), that the SO had abused her discretion by not considering section 6511(h) and by not trying to help the taxpayer get a necessary doctor letter to prove financial disability. The judge ordered a remand. The judge was highly dubious of the SO’s testimony (contradicted by the taxpayer) that the taxpayer had never even mentioned her disability and hospitalization for bi-polar disorder during the CDP hearing.  The judge was in a bit of a pickle, though, since Ms. Kurko lives in the First Circuit, which is one of the Circuits that holds that the Tax Court proceeding is limited to the administrative record.  The Tax Court feels otherwise, and the D.C. Circuit held in Byers v. Commissioner, 740 F.3d 668 (D.C. Cir. 2014), that CDP cases involving only collection issues are properly appealable to it — a Circuit that has not ruled on the CDP record rule issue.  Judge Gustafson did not want either to cite Byers or get into whether he had to apply the record rule.  So, here’s how he finessed the issue of expanding on the administrative record when neither the administrative correspondence not Case Activity Record mentioned section 6511(h) or disability:

The IRS contends that out review is confined to the administrative record. The IRS says that an appeal in this case would lie in the United States Court of Appeals for the First Circuit, and that the First Circuit has adopted the “record rule” and has held that, in such a review, we are confined, with “limited exceptions”, to the administrative record developed in the CDP hearing before IRS Appeals. Murphy v. Commissioner, 469 F.3d 27, 31 (1st Cir. 2006). This position involves two difficulties — first, that it is unclear whether a contention (explained below) that a credit elect overpayment should be applied to the liability is an “issue relating to the unpaid tax” (sec. 6330(c)(2)(A)) that would be subject to the record rule; and second, that it is unclear whether a taxpayer seeking a credit elect is “seeking redetermination of tax liability” for purposes of section 7482(b)(1)(A) or whether instead appeal would be to the D.C. Circuit (sec. 7482(b)(flush language)).

However, we assume for present purposes that the “record rule” does govern this case, but we find applicable one of the exceptions that the First Circuit noted — i.e., that “[a] reviewing court may accept evidence outside the administrative record…where there is a ‘failure to explain administrative action [so] as to frustrate effective judicial review,’ Camp v. Pitts, 411 U.S. 138, 142-43, 93 S.Ct. 1241, 36 L.Ed.2d 106 (1973) (per curiam).”

We think that the silence of the notice of determination about IRS Appeals’ resolution of Ms. Kurko’s credit elect claim and the absence from the record of the information she gave about her disability combines to fit this exception. Whether from overwork or inattention, the SO failed to record Ms. Kurko’s insistence that her disability accounted for her late 2008 return, and in its determination IRS Appeals failed to address that contention, which we now explain.

So, at trial, the judge took testimony from the SO and Ms. Kurko on what transpired during the CDP hearing and found that the SO’s testimony was incredible on its face.  Here’s only a bit of the flavor of what the judge wrote of the SO’s testimony:

The settlement officer (“SO”) . . . had been an SO for more than 10 years.  She estimates that she has handled 450 cases per year (i.e., more than 4,500 cases by the current time) and states that she cannot recall the details of the cases.  At trial several of her answers to questions about what was said on a given subject in Ms. Kurko’s case were in the nature of “Nothing that I can recall” or “Nothing that I can remember”, and she appeared to indicate that in fact she had no recall of Ms. Kurko’s hearing. For each case the SO prepares a “Case Activity Record” on which she makes dated entries of her contacts with the taxpayer, but it is clear that she does not attempt thereby to give a transcript of her conversations nor even to note every specific subject that is discussed.  Consequently, some of what we find Ms. Kurko said over the telephone does not appear in the SO’s case activity record or other documents in the IRS’s record for this case.  The SO believes that, in her more than 10 years on this job with more than 4,500 taxpayers, no taxpayer has ever requested in a CDP hearing that he be found “financially disabled” for purposes of the statute of limitations on refund claims (see section 6511(h)).

Relying on Ms. Kurko’s testimony, instead, the judge believed that Ms. Kurko mentioned her bi-polar disorder, her 2009 hospitalization, and her then pursuit of Social Security disability. The judge did not merely state (like some judges) that it is premature to declare the SO to have abused her discretion.  Instead, he issued a bench opinion finding an abuse of discretion and ordering a remand to consider the section 6511(h) issue.  The remand hearing is supposed to be completed by February 17, with a report due to the court by March 16.  To me, the Kurko case deserves not only counting as a litigation by TAS, but a description by TAS as one of the more important CDP litigations of the current year.

Closing Observations

One final sad note about Ms. Kurko.  She is pro se and may be in such a bad condition that she is incapable, without assistance, of getting the appropriate doctor’s letter under section 6511(h).  The judge carefully explained what she needs to do to get the letter during the remand.  In his November order, he begged someone to step forward as her “next friend” or with a Form 2848 power of attorney to represent her at Appeals.  I am retired and not still taking on new cases, but I would urge any attorney in Massachusetts who wants to help this poor woman to step forward and do a real pro bono service for her.

There are some judges on the Tax Court who came from private practice and so will approach private lawyers they knew from pre-judge days and ask them to either step into a Tax Court case or do an appeal pro bono.  To his great credit, Judge Holmes will do this, even when he knows he is asking the attorney to take a position that Judge Holmes opposed in a vehement dissent in a T.C. opinion.  Judge Gustafson comes from government, and whether he doesn’t know enough people in Boston or feels queasy about doing this, he is now watching a slow-motion tragedy unfold before him.  It seems highly likely that a sufficient section 6511(h) letter could be obtained, but the taxpayer is too disabled even to comply with Rev. Proc. 99-21.  This is more reason either to expand section 6511(h) not to be so restrictive or to statutorily overrule United States v. Brockamp, 519 U.S. 347 (1997), which prohibits equitable tolling of the section 6511(a) and (b) periods.

This also raises another issue, which I leave to others to discuss:  Every U.S. district court has pro bono panels of lawyers willing to be assigned (and compensated) for criminal cases.  And every Circuit Court has pro bono panels of experienced appellate lawyers willing to be assigned to both criminal and civil cases — the civil cases for free.  Has the time now come for the Tax Court to set up a pro bono panel of Tax Court practitioners who would be willing, on occasion, to be assigned by a judge to take on a taxpayer’s case — including handling pro bono any necessary appeals?  Please give your views on this in the comments section.  We need to know if there is a ground swell for doing this.

Four More Tax Court Cases Challenging the Removal Power of Tax Court Judges

Carl follows up on his post discussing post-Kuretski litigation from earlier this week. Les

In my prior post of January 5, I reported that on December 19, attorney Joseph A. DiRuzzo, III of Fuerst Ittleman David & Joseph, PL in Miami filed a motion in Emles v. Commissioner, Tax Court Docket No. 24872-14L, to have the President’s power to remove Tax Court judges at section 7443(f) declared unconstitutional.  I pointed out, though, that, since Elmes was a Collection Due Process proceeding, it was unclear whether the Circuit to which the case could properly be appealed was the 11th Circuit (the Circuit of residence) or the D.C. Circuit.  Mr. DiRuzzo’s goal is to generate a Circuit split, just in case the Supreme Court does not grant a currently-pending petition for a writ of certiorari to the D.C. Circuit in the Kuretski case that raises the same issue.  As an update, on January 5, Mr. DiRuzzo filed similar motions regarding section 7443(f)’s removal power in four other Tax Court cases.  All the other cases are deficiency cases at a pretrial stage and currently assigned to a judge.  By contrast to Elmes, appeals from any of these four deficiency cases will certainly go to the Circuit of residence under section 7482(b)(1)(A).  The cases, judges assigned, and Circuits involved are as follows:  Teffeau v. Commissioner, Tax Court Docket No. 27904-10 (Judge Jacobs) (4th Circuit);Thompson v. Commissioner, Tax Court Docket No. 6613-13 (Judge Wherry) (9th Cir.); Battatt v. Commissioner, Tax Court Docket No. 17784-12 (Judge Nega) (11th Cir.); and Meggs v. Commissioner, Tax Court Docket No. 14604-12 (Judge Nega) (11th Cir.).

The issue may be more complicated in the case before Judge Jacobs, since he is a Senior Status judge sitting on cases after being recalled to do so by the Chief Judge under section 7447(c).  However, I think the problem of the removal power indirectly extends to judges recalled on Senior Status, since, because of the removal power applicable to the Chief Judge under section 7443(f), the Chief Judge may not be inclined to recall judges who rule too often against the IRS.

As a further update, on January 6, Chief Judge Thornton ordered the IRS to file any objection to the Elmes motion by March 9 — which, ironically, is likely to be the day the Supreme Court announces whether it will grant certiorari in Kuretski.


Another Tax Court Case Arguing Against the President’s Power to Remove Tax Court Judges

Carl Smith rings in the new year on PT and provides an update on post-Kuretski litigation. He also takes us through the winding path of appellate venue issues. Les

In Kuretski v. Commissioner, 755 F.3d 929 (D.C. Cir. 2014), the D.C. Circuit ruled that the President’s power to remove a Tax Court judge under section 7443(f) did not violate the separation of powers.  The court reasoned that the Tax Court was an executive agency, so there was no impermissible difference in Branch between the person holding the removal power and the person potentially to be removed. In Kuretski, the Tax Court, in an unpublished order, had declined to rule on the constitutional issue — citing the lateness of the taxpayers’ raising the argument (in a motion to vacate) and the potential conflict of a judge who was under the power ruling on the validity of the power.  A petition for certiorari is pending in Kuretski.  But, that has not stopped another attorney from filing another motion in another Tax Court case raising the same constitutional issue — apparently to get a ruling out of the Tax Court and to create a Circuit split (on the reasonable assumption that the Supreme Court does not grant certiorari in Kuretski without a Circuit split).  The attorney is Joseph A. DiRuzzo, III of Fuerst Ittleman David & Joseph, PL in Miami.  The Tax Court case in which he filed the motion on December 19 is Elmes v. Commissioner, Docket no. 24872-14L  (the Elmes motion can be found here).


I am one of the 10 counsel for the taxpayers in the Kuretski case, and I can say that none of us had any foreknowledge of, or participation in, the Elmes case filing.  However, after Mr. DiRuzzo filed his motion, he sent us a copy, and I have since spoken to him.

Mr. DiRuzzo’s motion has taken one reason cited by the Tax Court in Kuretski for avoiding ruling on the constitutional issue off the table.  The Elmes motion was filed only one day after the IRS filed its answer in the case.  Thus, the motion cannot be avoided on the ground it was filed too late.  The motion is styled “Motion to Disqualify & Motion to Declare 26 U.S.C. § 7443(f) Unconstitutional”.

But, Mr. DiRuzzo has picked an unusual case in which to make the constitutional motion.  Elmes is a Collection Due Process case in which there is no challenge to the underlying liability.  This brings up the issue of the Golsen rule in the Tax Court, under which the Tax Court follows the precedent, if any, of the Court of Appeals to which a case is appealable.  In prior blog posts Tax Court dodges CDP record ruling and Byers v Comm’r CDP Venue in Courts of Appeal May Be Upended, I noted the difference between the Tax Court and three different Circuits (the 1st, 8th, and 9th) over whether a taxpayer in a Tax Court CDP proceeding may create a de novo record or is limited to the administrative record created at Appeals.  The Tax Court holds that a de novo record can be created, while those three Circuits (the only ones to date to have considered the issue) have held that taxpayers are limited to the administrative record.  On the undiscussed assumption that all Tax Court CDP cases are appealable to the Circuit of residence under section 7482(b)(1)(A) (involving petitions for “redetermination of tax liability”), the Tax Court has held that, under Golsen, for petitioners living in the 1st, 8th, and 9th Circuits, the Tax Court must limit its proceedings to the administrative record, but not for petitioners living in the rest of the country.  In Byers v. Commissioner, 740 F.3d 668 (D.C. Cir. 2014), the D.C. Circuit held that only it is the proper venue on appeal from the Tax Court for CDP cases that do not involve a challenge to the underlying liability.  The D.C. Circuit reasoned that it was the proper venue under the catchall flush language at the end of section 7482(b)(1) directing all appeals not covered by any subparagraphs to D.C. The D.C. Circuit found that the exception at subparagraph (A) does not apply because a CDP case that presents no challenge to underlying liability only involves collection issues, not any “redetermination of tax liability”.

The Tax Court has not directly addressed whether it will follow Byers for purposes of its Golsen analysis — particularly with regard to the record rule issue discussed in the prior paragraph.  If the Tax Court in Elmes adopt Byers‘ CDP venue holding, then the Tax Court would hold that, since the D.C. Circuit currently has no opinion addressing the record rule issue, Golsen allows the Tax Court to follow its own precedent countrywide — and would allow de novo Tax Court record creation for all petitioners throughout the U.S.  This would likely effectively render as moot the 1st, 8th, and 9th Circuit contrary rulings that taxpayers are limited to the administrative record.  Clearly, the government does not want to give up those hard-won Circuit court victories, as the IRS is still in Tax Court current cases urging the Tax Court to follow the three Circuit courts and not permit the taxpayer to supplement the administrative record in Tax Court CDP proceedings countrywide.

The Elmes motion, in effect, invites the Tax Court and the IRS to weigh in on the Byers venue issue.  It would be natural for the IRS to argue in Elmes that the Elmes case is not appealable to the 11th Circuit (where the taxpayer lives), but, following Byers, is appealable only to the D.C. Circuit, which Circuit has already ruled adversely on the constitutional issue in Kuretski.  But, if the IRS wins this argument, the IRS will have a hard time urging the Tax Court in future cases to ignore the Byers venue ruling when the issue in the case is expanding on the CDP administrative record.  Mr. DiRuzzo has put the IRS in a tough spot. Indeed, it is a double tough spot:  In response to Mr. DiRuzzo’s motion, does the IRS really want also to argue to the Tax Court judges that they are merely employees of an administrative agency and not real judges?  Notably, during the Freytag litigation concerning the appointment of Special Trial Judges, the IRS argued to the Tax Court and the 5th Circuit that the Tax Court was one of the “Courts of Law” — a position abandoned by the DOJ in the Second Circuit and the Supreme Court, where the government argued that the Tax Court was an executive agency.  See First Western Government Securities, Inc. v. Commissioner, 94 T.C. 549, 559-560 (1990), affd. sub nom. Samuels, Kramer & Co. v. Commissioner, 930 F.2d 975 (2d Cir. 1991); Freytag v. Commissioner, 501 U.S. 868, 888 n. 5 (1991) (noting the government’s shift in position).  And in response to the motion to vacate filed in Kuretski, the IRS declined to make any argument as to the constitutionality of section 7443(f) or whether the Tax Court was a court or an agency — contending only that the Kuretskis lacked standing to challenge the provision.  Perhaps the IRS did not wish to have to argue to the Tax Court the position ultimately adopted by the D.C. Circuit in the case that the Tax Court is an executive agency

Let’s imagine next what happens in Elmes, say, if the Tax Court adopts Byers and says it need not decide its own position on the removal power issue because it is compelled under Golsen to rule the removal power valid under the D.C. Circuit’s opinion in Kuretski.  Recall that it will be Mr. DiRuzzo arguing to the Tax Court that the 11th Circuit is the correct venue on appeal.  His client will not be precluded from filing a notice of appeal in the 11th Circuit.  The DOJ would then likely move to transfer the case to the D.C. Circuit, citing Byers.  But, the 11th Circuit is not bound by Byers.  The 11th Circuit may conclude that Byers is wrong about appellate venue, and then the 11th Circuit could move on to decide the constitutional question — possibly finding the removal power unconstitutional and thereby creating a Circuit split with the D.C. Circuit in Kuretski.

Let’s spin out one of many other possible outcomes:  Imagine the Tax Court does not agree with Byers or Kuretski and rules that since the 11th Circuit is the proper appellate venue, and, since the 11th Circuit has no precedent on section 7443(f), Golsen doesn’t dictate the Tax Court’s result in Elmes.  Then, imagine that the Tax Court proceeds to hold in Elmes that it exercises the judicial power and is not an executive agency, such that the removal power is unconstitutional.  I would expect the DOJ then to appeal the holding to the D.C. Circuit, which will be very annoyed that the Tax Court ignored both Byers and Kuretski.  The D.C. Circuit will not entertain any motion to transfer the case to the 11th Circuit and will summarily overrule the Tax Court based on its Kuretski opinion.

There are still more permutations as to how the Elmes case can come out on the constitutional issue.  For one, remember that Elmes is seeking an interlocutory ruling that is not instantly appealable — though the Tax Court has the power to authorize an interlocutory appeal under section 7482(a)(2).  What if the Tax Court does not authorize an interlocutory appeal, holds the removal power unconstitutional, and holds that the IRS did not abuse its discretion in upholding the proposed collection action underlying the case?  Will the DOJ appeal its constitutional loss to the D.C. Circuit while the taxpayer appeals his underlying loss to the 11th Circuit?  Will there be a rush to appeal and then motions filed to transfer both appeals to the other Circuit?

Next, what if the Tax Court in Elmes once again declines to issue a ruling on the constitutional issue, as it did in Kuretski — citing a conflict of any of its judges in ruling on the removal power issue?  Certainly, that would not preclude a court of appeals ruling on the issue if one of the parties appealed.  See the Kuretski D.C. Circuit opinion as an example of considering the important constitutional issue for the first time on appeal.  Accord the Supreme Court’s Freytag opinion (501 U.S. 868 (1991)), which is the basis for much of the 7443(f) fight.  It is not clear which court of appeals would rule here (the D.C. Circuit or the 11th Circuit), since both parties may at this point have sought a ruling from the Tax Court on the constitutional issue, and both parties may file notices of appeal complaining that the Tax Court did not rule..

While Elmes may be a good case to trigger a possible Tax Court ruling on the venue issue presented in Byers, as can be seen from the above, it is not the best litigating vehicle for creating a Circuit split on the removal power issue.  But, I am informed that there are lawyers who are counsel in simple deficiency cases who are considering making their own constitutional motions concerning section 7443(f).  If they do make timely motions in those deficiency cases, there will be no question but that those cases would have appellate venue in a Circuit of residence.  So, if certiorari is denied in Kuretski, I think you will see other attempts to create a Circuit split on this removal power issue that are far simpler and direct. Stay tuned.

Final observation:  To my surprise, pro se taxpayers have already started using the D.C. Circuit’s CDP venue holding in Byers themselves in cases involving other issues.  I am aware of two such cases, and there may be more.

First, on December 8, notices of appeal to the D.C. Circuit were filed in Onyango v. Commissioner, 142 T.C. No. 24 (6/24/14), D.C. Docket nos. 14-1280 & 14-1288.  Mr. Onyango lives in the 7th Circuit.  His case was blogged about by Keith here, and it involves whether Mr. Onyango may challenge the underlying liability when he did not bother to pick up his certified mail that contained a notice of deficiency (the Tax Court held “no”).  In Byers, the D.C. Circuit suggested in dicta that a CDP case involving the underlying liability should be brought in the Circuit of residence.  I expect the DOJ to move to transfer his case to the 7th Circuit, and we will see if the Byers dicta becomes a holding in Onyango.  Parenthetically, Mr. Onyango knows Mr. Byers, who has passed on to me a request for amicus assistance to Mr. Onyango from anyone who feels the Tax Court holding that he received a notice of deficiency is too restrictive.  Please contact me if you are interested — especially a Tax Clinic.

Second, there was an unpublished CDP order granting summary judgment in a Tax Court case named Greenberg v. Commissioner, Tax Court Docket No. 9023-13L.  See here for the order.  The Greenbergs live in California, yet on December 10, they appealed their Tax Court loss to the D.C. Circuit. (D.C. Circuit Docket no. 14-1278).  Their case involved solely the issue of whether the IRS should not have filed a notice of federal tax lien (or should have withdrawn it) around the time they entered into an installment agreement.  Under Byers, their case will clearly stay in D.C., as it involves no challenge to the underlying liability.