Summary Opinions for 4/18/2014

VillanovaWildcatsIt is absolutely gorgeous out today.  A great day to run the Boston Marathon, which my mother-in-law is doing this morning.  Go Jean!  I can’t imagine how the environment feels, with such emotion following last year.  My house will be cheering all the runners and the City of Boston today.

Last week had two great guest posts, for which we are grateful.  Professors Stephanie Hoffer and Christopher Walker of Ohio State posted the first part of their two part article on the Death of Tax Exceptionalism and the Tax Court.  These are teaser posts for a full article to be published soon. Professors Hoffer and Walker argue forcefully that the Tax Court and some circuit courts have failed to situate  court review of IRS determinations as within the mainstream of administrative law. We believe the article is important and practical procedural scholarship and recommend a read.  And, our (guest) blogger, Carlton Smith posted on timely filing from prison and the recent Sharma case.  Mr. Smith’s most recent post highlights this interesting specific issue, but, of course, also provides great insight into a range of other procedure areas like equitable tolling, appellate venue, and the Golsen rule.

To the other procedure items from last week:

  • Sticking with Carlton Smith. He sent us an email earlier this week updating us on the cases currently considering Rand and penalties.  Carl has written on this before for us, most recently in his very well received post, “Seven Tax Court Judges Depart From the Court’s Penalty Precedents.”  This week, the Tax Court published its decision in Faecher v. Comm’r, following Rand and indicating the Court has some duty to remove penalties even when not plead by the taxpayer, stating: 

The Commissioner generally bears the burden of production with respect to the liability of any individual for any penalty or addition to tax. Sec. 7491(c).  However, we have held that where the taxpayer fails to state a claim with respect to a penalty or addition to tax, the Commissioner incurs no obligation to produce evidence in support of the individual’s liability pursuant to section 7491(c), see Funk v. Commissioner, 123 T.C. 213, 216-218 (2004); Swain v. Commissioner, 118 T.C. 358, 364-365 (2002), at least where nothing in the record suggests the addition or penalty has been incorrectly computed. Where, as here, the record demonstrates that the penalty sought by respondent is erroneously calculated, we conclude that it should not be sustained, without regard to whether petitioner has stated a claim in the petition concerning the penalty. 

    Later in the week, other orders were issued in similar cases, with similar results.  Appeals in these cases can go to various courts, including the DC Circuit,      Second Circuit and Seventh Circuit.  I am sure Mr. Smith will continue to monitor on this matter, and provide us with additional insight.

  • I am happy to engage in some self-promotion for Villanova here (although somewhat envious, because Villanova wasn’t throwing this cash around when I was going through).  The Grad Tax Program has announced its Villanova Graduate Tax Program Assistantships for 2014-2015.  The program provides tuition scholarship  for up to two (2) full-time LL.M. students.  The recipients receive a complete waiver of tuition and academic fees for the Villanova Graduate Tax Program courses that will fulfill the requirements of the degree program (24 credits).  In exchange for the free tuition, you are enslaved to Keith Fogg for  20 hours of service per week in the Villanova Federal Tax Clinic for case-related and research work.  I jest, but the Villanova Federal Tax Clinic provides some of the best preparation for the actual practice of law, and prospective students would be hard pressed to find a better clinic director than Keith Fogg (apart from Les who directed when I was there).  Interested students must apply to the Villanova Graduate Tax Program  and indicate an interest in this assistantship on the program application in order to be considered.  The application deadline for Fall is July 31st.  Please email with any questions. 
  • Reuben Miller posted the final order to a LinkedIn group in Jackson v. Comm’r, the case where the Court questioned whether Notice 3219 was a valid SNOD.  We previously covered this case here, and here.  The Court held that the taxpayers were not mislead by the notice, it had jurisdiction to review the matter, and appears to have taken into consideration the fact that the Service will no longer be using the language in the form that it found questionable in coming to those determinations.   A nod should be given to the Tax Court for prodding the Service to fix a faulty form, and the Service should be commended for its prompt response to the problem (assuming reports are correct that the form has been retired and/or reworked).  Interesting, the Hoffer/Walker article I discussed above makes the point that the Tax Court could be doing more of this institutional prodding if the APA were held to apply to Tax Court proceedings.
  • The Tax Court last week in Ad Investment 2000 Fund, LLC v. Comm’r agreed with the IRS that taxpayers waived attorney-client privilege with respect to opinion letters from a law firm when the taxpayers attempted to invoke the affirmative defenses of good faith and state of mind even though the taxpayers were not raising a reliance of counsel defense.  This case will garner some attention, and we hope to have some follow up content in the near future. 
  • Slovakia has found a way to turn tax procedure into a successful game show, which the country seems to love and has assisted the taxing authority in increasing compliance.  I have not fact checked any of this, and it is all taken from a NYT blog found here.  The government had been losing revenue from its VAT because taxpayers were failing to comply with the reporting requirements.  Auditing and prosecuting was an expensive way to handle the issue, so Slovakia created a lottery where the government selected winners based on VAT receipts submitted to the government.  Each citizen (not the merchant) submits the receipts, which are then checked against the merchant’s filings.  Any purchase over one Euro can be submitted.  Every month, a receipt is selected, and the taxpayer either receives a car, or a chance to be on the Slovakian version of the Price is Right (I’m picturing Borat meets Bob Barker, which is probably totally wrong, and offensive to the Slovakians).  Although the article provides no direct proof, VAT collections are way up since the start, and many taxpayers have complained about merchants providing fake receipts or no receipts, making it easier to focus on cheats.  I’m not sure which is more effective, but Slovakia’s plan is certainly more interesting than the IRS YouTube videos. 
  • The Tax Court has found that an estate was not eligible to pay its estate tax installments under Section 6166, as it failed to make the election on a timely filed Form 706.  In Estate of W. R. Woodbury v. Comm’r, the estate did include a letter indicating its intent to make a Section 6166 election when it made its extension request.  Two and half years after the extension period passed, the estate filed its return and elected Section 6166.  The Court did consider whether the letter was an effective election under Section 6166, but it failed to include the requirements found under the statute and under Treas. Reg. § 20.6166-1.  Specifically, the applicable assets and their values were not included in the transmittals. 
  • Additional IRS notice regarding the various phone scams targeting taxpayers. The Service reiterated that it always sends written notices regarding amounts outstanding, and never asks for credit card information over the phone.  The notice also notes that the scammers are threatening deportation, arrest, shutting off utilities, and revoking driver’s licenses.


Tax Court dodges CDP record rule ruling

Today we welcome back guest blogger Carlton Smith with another discussion of the Golsen rule.  Because of the uncertainty surrounding the Tax Court’s appellate venue at this point with respect to certain issues, we continue to visit cases where the Golsen rule can have a hand in the outcome or at least be lurking in the background.  Here the importance of the Golsen rule interplays with the administrative law record rule.  We thank Carl for his observations on the way appellate venue can influence the outcome of a case before the Tax Court.  Keith

There have been several blog posts on the interplay of the Tax Court’s Golsen rule and the issue of whether the Tax Court, in reviewing an Appeals Settlement Officer’s actions at a Collection Due Process hearing, may take in additional evidence that was not part of the administrative record at Appeals.  Those posts were in connection with a litigation in the D.C. Circuit over the proper Circuit to which a Tax Court CDP decision is appealable.  In Byers v. Commissioner, 740 F.3d 668 (Jan. 17, 2014), the D.C. Circuit recently held that it — and not the regional Circuit in which the taxpayer lived — was the proper venue on appeal for those CDP Tax Court cases in which the taxpayer was not raising any issues about the underlying liability.  In an opinion issued by Tax Court Judge Cohen this week, Dalla v. Commissioner, T.C. Memo. 2014-37, she cleverly avoided wading into the issue of whether the Tax Court agrees with the Byers opinion.  Dalla was the first case in the Tax Court presenting the conundrum created by the Byers ruling.


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

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

In Dalla, two taxpayers residing in Nevada (the Ninth Circuit) complained of the Settlement Officer’s calculation of their monthly income available to pay back taxes.  Although they also initially challenged that underlying liability at Appeals, they gave up that challenge during the Appeals CDP hearing and did not raise the challenge again in their Tax Court petition.  To the Settlement Officer and the Tax Court, the taxpayers had also argued that they should have been put into currently not collectible (CNC) status.  The Settlement Officer had determined that the taxapyers could make monthly payments that would fully pay off the taxes owed.  The Tax Court litigation was merely over the issue of whether the taxpayers were entitled to CNC status.

During the Tax Court trial, one of the taxpayers testified and tried to introduce documents.  The IRS promptly objected to expanding on the administrative record — no doubt citing the Ninth Circuit’s Keller opinion holding that a Tax Court CDP proceeding is limited to the administrative record.  Judge Cohen took in the evidence (testimony and documents) without ruling yet on the IRS’ objection.  I speculate that she did not immediately rule that the evidence was excluded under Keller (following it under Golsen) because she had read a law review article in 2008 that had argued that CDP cases were appealable only to the D.C. Circuit (the same article relied on by Mr. Byers and the D.C. Circuit).  If she were to hold under Golsen that the D.C. Circuit was the correct venue on appeal for the Dalla case, then, since the D.C. Circuit had never addressed the record rule issue, Judge Cohen would be bound by the Tax Court’s Robinette opinion allowing the expansion of the administrative record.

When she wrote her opinion, though, she managed to dodge the record rule issue.  Without even citing Keller, Robinette, Golsen, or Byers, she merely observed:  “[W]e conclude that consideration of the testimony and additional arguments and exhibits offered by petitioners would not affect our conclusion and that respondent’s objection, which we took under advisement, has been rendered moot.”  Slip op. at *10.  She held that, with or without this non-record evidence, the taxpayers had not shown the Settlement Officer abused his discretion in finding that the taxpayers were not entitled to CNC status.

I would not be surprised if other Tax Court judges, in appropriate cases, for some time take the way out that Judge Cohen found to avoid deciding the CDP record rule issue after Byers.  But, eventually, someday, that way out won’t be available; the additional non-record evidence presented by a taxpayer will require the Tax Court to rule differently than if it only considered the administrative record.  When that day comes, the Tax Court will have to decide either (1) whether it agrees with Byers that CDP cases not challenging underlying liability are all appealable to the D.C. Circuit, so under Golsen, the Tax Court should apply its own Robinette precedent allowing supplementing the record, (2) whether the Tax Court disagrees with Byers, so the Tax Court must follow the precedent (if any) of the Circuit in which the taxpayer lives, or (3) without deciding whether the Tax Court agrees with Byers, since the Tax Court can’t control the Circuit to which a party will appeal (i.e., regional or D.C. Circuit), the Tax Court should just ignore Golsen‘s command to follow the precedent of a Circuit contrary to the Tax Court’s precedent.  After all, Golsen is simply a rule of convenience to avoid automatic reversals.  If the Tax Court can’t tell which Circuit will review it — so that automatic reversal is not inevitable — it would seem that the Tax Court should follow its own precedent (the one it thinks is right as a legal matter).


Summary Opinions for 2/28/2014

I was wrapped up in client matters this week, and just now got a chance to review the posts we put up this week.  Les’ post on King v. Sebelius explained why courts are allowing challenges to IRS guidance under Obamacare even if there is no refund or deficiency case, and he briefly summarized the procedural aspects of the Camp proposal  and highlighted some important interest cases percolating in the courts. The post by A. Lavar Taylor on when taxpayers should be able to challenge the merits of underlying liability in CDP appeals made a forceful case for the Tax Court to reconsider its approach, and we are thankful for his contribution.  Les and Keith’s comments introducing that article are also insightful, and Keith’s prior role at IRS on the CDP reg project provides a great historical perspective.

  • The Eleventh Circuit  in Govt of USVI/Huff v. Comm’r, has joined the Third and Eighth Circuits in allowing the US Virgin Islands to intervene in cases where the Service is questioning whether taxpayers are bona fide USVI residents.  The Fourth Circuit disagreed.  Being a USVI bona fide resident provides substantial tax benefits, and the test has gone through some changes over the last decade.  This issue is complicated, and I am sure we will have a full post on it sometime in the future.  Joseph A. DiRuzzo, III of Fuerst Ittleman has litigated a handful of these cases, and has posted blog entries on his firm’s page about the issue and the USVI intervention.  The most recent post regarding the 11th Circuit case can be found here, and it has links to his prior posts.  A few years ago, I needed to get up to speed on this issue, and used his posts as my initial resource.


  •    Joe Kristan’s blog has good coverage on Judge Buch of the Tax Court actually devoting substantial ink to a case involving the arguments of a well-known tax protestor, Peter Hendrickson.  Not an important substantive holding (the case considers and applies sanctions to the taxpayer under Section 6673), but interesting that the Court decided to write a more lengthy decision since Mr. Hendrickson was so active in discussing these frivolous arguments. Judge Buch explained that written opinions are the heart of the common law system and he noted that opinions serve many purposes: “they assist attorneys in advising clients and preparing cases; they provide the lower court’s rationale when the appellate court must evaluate its decision; they inform the public of the court’s analysis; and they establish clear and articulate rules for the future.  Further discussion of the case, and praise for Judge Buch, is found at the informative Taishoff law firm blog post Cracked, where he aptly describes the taxpayer in the case as a frivolity merchant who took his lead from Hendrickson.


  • Judge Krupa in Patrick v. Comm’r, has ruled that Whistleblower proceeds under the Fair Claims Act were ordinary income, and not capital gain.  The attorneys at Robert Wood’s law firm made a valiant effort in arguing that the information was a property right being sold, but I can’t say I’m terribly surprised in the holding.  I have not really reviewed the applicable law, but my assumption would have been this was not the sale of a capital asset.  I think the appeal would be to the 9th Circuit (I could be wrong about that), which also has adverse case law (which Mr. Wood’s firm was involved in), so we may not see an appeal.


  • Big 4 accounting is being a killjoy about March Madness, informing employees not to waste bandwidth on daytime games.  No similar ban at my office (I’m in charge of technology), but I will still probably be taking daytime client meetings at Side Bar in West Chester on March 20th and 21st from noon on.


  • The 9th Circuit had a short but sweet opinion about appropriate venue for a German national and resident to bring his tax refund and whether the District Court or Circuit Court could transfer the case to the Court of Federal Claims. In Topsnik v. US, the Ninth Circuit stated that appropriate jurisdiction was in the Court of Federal Claims, and the non-resident could not sue in the District Court.  See Malajalian v. US.  28 § 1402(a)(1) provides that any action filed in a district court against the United States may proceed only in the judicial district where the plaintiff resides. The taxpayer was a resident of Germany. This rule is different for corporate taxpayers, and there is case law that indicates if the Service encourages someone to file in a District Court there may be an estoppel argument.  The taxpayer in Topsnik also requested a transfer to the Court of Federal Claims, but the Ninth Circuit said that was inappropriate, as the venue transfer statute (28 USC 1404(a)) only references a “district or division” of the district courts, which the Court of Federal Claims is not.


  • Representative Camp is not the only one suggesting legislative changes.  The AICPA has also suggested 32 modifications to the Code to simplify things.  Some of their tax procedure suggestions including adding a reasonable cause exception to Section 6707A and Section 6662A, repeal Section 7122(c)(1) 20% payment in OICs, amending Section 6051 to allow for truncated SSNs and increasing penalties on preparers who engage in fraud.


  • With all this talk about tax reform, the Congressional Research Service has provided a report on the cost of the various individual itemized deductions currently in the crosshairs.  Not surprising, home mortgage interest, real estate taxes, state and local taxes and charitable contributions make up a substantial portion of the tax revenue loss.


  • Some statistics on our collective view of cheating on taxes, with 12% or 14% of people saying cheating on taxes is okay.  This is up over the last few years.


  • The most important accounting news of the year:  An article in Times about the two PWC accountants who already know that 12 Years a Slave will win Best Picture at Sunday’s Oscars.  I am defending champion of our office Oscar pool, so I’m facing some pretty serious stress this weekend.  Last year, the only movie I had seen was Brave.  This year, I’ve bested myself, having seen none of the movies nominated (although I have heard that song from Frozen – probably evident that I have young daughters).





Refund Suits, Divisible Taxes and Flora: When is a representative payment representative enough? Part 1

Today we hear from Guest Blogger Rachael Rubenstein, and her former student, Paul Downey.  Paul is completing his Tax LLM at Southern Methodist University.  Rachael supervises the low income taxpayer clinic at St. Mary’s University School of Law in San Antonio, Texas.  She, along with clinic students, litigated a trust fund recovery case that captured much attention last fall (see our coverage of Kaplan and Jack Townsend’s blog post about the case) when the Court of Federal Claims dismissed the case for lack of jurisdiction after the clinic followed what was previously assumed to be a well-worn path to jurisdiction in such cases.  They write here about the reversal of last year’s decision and the importance of the reversal.  The case has two distinct and important aspects.  Because of that, we are breaking her post into two segments.  Today’s segment will address the IRC 6331(i) issue.  This Code provision generally prohibits the government from filing suit against a taxpayer for unpaid divisible taxes (assessed under IRC 6672) when the taxpayer first files a refund suit for recovery of any portion of the taxes paid.  The statute permits injunctive relief for taxpayers against these collection activities, but it also identifies exceptions to the prohibition against later filed suits.  Although the IRC 6331(i) dispute and result in Kaplan are not ground breaking, it is an important procedural issue we have not previously discussed.  In the second post, coming out tomorrow, Rachael will address the amount an alleged responsible officer must pay to litigate the correctness of that determination.  In addition to supervising the low income tax clinic program at St. Mary’s, Rachael has agreed to co-author the chapter on Identity Theft coming out in the next edition of Effectively Representing Your Client before the IRS.  My comments are in italics.


On January 27, 2014, in Kaplan v. United States, Judge Wheeler of the United States Court of Federal Claims made a significant jurisdictional decision in favor of a plaintiff taxpayer in a refund suit.  The issue decided was whether Mr. Kaplan’s three $100 payments towards the Trust Fund Recovery Penalties (TFRPs) assessed against him under section 6672 were sufficient amounts to confer jurisdiction on the court to determine Kaplan’s ultimate liability for the penalties.  The court ultimately accepted the three $100 payments as sufficient to establish subject matter jurisdiction but the decision did not come easy.  In August of 2013, the government filed a motion to dismiss Mr. Kaplan’s complaint, arguing that his $100 payments did not satisfy the jurisdictional requirement that he “pay the entire assessment for at least one employee per quarter.”   The government cited to Flora as authority while also acknowledging that “a number of courts have held that the full-payment rule is a divisible tax, and requires a taxpayer to pay only the amount of the penalty attributable to one employee before bringing a refund suit.” 

This attempt to deprive plaintiff of his choice of forum using Flora as authority was unusual and probably stemmed from the government’s earlier failure to get rid of Kaplan’s case in the Court of Federal Claims.  Before the government filed an answer, to Kaplan’s complaint, it moved to suspend the proceedings and simultaneously filed a separate lawsuit against Kaplan and another defendant in the Western District of Texas to reduce their TFRP assessments to judgments.  Kaplan sought an injunction against the government’s suit in Texas under section 6331(i).  For strategic reasons involving precedent, Kaplan purposefully exercised his right to file suit in the Court of Federal Claims, not the Western District of Texas.  The government was clearly not happy with plaintiff’s “forum shopping.”  Regardless, Kaplan argued that taxpayers have every right to exercise their choice of forum for refund suit litigation.  Moreover in the past few years, several trial courts, including the Court of Federal Claims, held that section 6631(i) prohibits these later filed government suits for the same taxes at issue; although no appellate circuit has yet ruled on the issue.  This venue dispute was briefed extensively and the case was temporarily stayed in both federal courts pending the outcome of Beard v. United States— a 6331(i) case that the government appealed to the Federal Circuit  after the Court of Federal Claims enjoined the government from maintaining its later filed suit.  The Federal Circuit never ruled on the 6331(i) issue because the Beard case settled after oral argument but before a decision was rendered.  In Kaplan the government ultimately conceded the issue and agreed to dismiss the case in Taxas and permit the Court of Federal Claims suit to move forward. While no longer an issue in Kaplan, section 6331(i) is likely to resurface in future cases.  I am working on a journal article with a colleague, Paul Downey, that explores the purpose of Congress’ addition of 6331(i) in the IRS Restructuring and Reform Act of 1998, and the tricky issues surrounding this powerful code provision.

[Keith comment’s]  The 6331(i) argument fascinated me because Chris Sterner and I made the suggestion that led to this provision in RRA 98.  In 1997 I was asked by the National Office to suggest changes to the Code that the IRS could offer in the collection area to benefit taxpayers.  I enlisted Chris, who also worked in the Richmond office at that time, to assist in the project because of his knowledge.  We looked for things similar to the provisions in Taxpayer Bill of Rights I and II that codified IRS practices beneficial to taxpayers.  The practice of the IRS was to hold off on collection of trust fund recovery penalty if a taxpayer sought to dispute the liability in court.  Because of that practice and the parallel between that practice and the deficiency procedures, we proposed codifying the practice of holding off in collection in trust fund recovery penalty cases along with over 20 other changes.  Several of our suggestions made it into the statue in some form.  Because I do almost no trust fund recovery penalty work in the low income taxpayer clinic, I had not followed this issue prior to reading Rachael’s submission.

The complete language of the statute can be reached through the link above.  The critical language of the statute for this discussion is in IRC 6331(4)(A) which provides that “No proceeding in court for the collection of any unpaid tax to which paragraph (1) applies shall be begun by the Secretary during the pendency of a proceeding under such paragraph.”  The goal of IRC 6331(i) was to keep the IRS from collecting while the TFRP case moved forward.  Taxpayers challenging this assessment have the possibility of winning their case and eliminating the need for collection action.  Collection action while the litigation ensues could significantly damage the taxpayer in a way that the subsequent return of the funds would not set straight.  The Kaplan case, like others before it, involved an indirect attempt to pursue collection.  The IRS did not seek to collect money from him but rather brought a suit to reduce the assessment to judgment.  The question presented is whether such a suit violates the language of the statute – which it clearly seems to do – and the purpose of the statute – which it does not so clearly do.  The IRS argued that the suit did not seek to actually collect anything and, therefore, should not be enjoined. 

The IRC 6331(i) issue arises here, in part, because of the rules of the Court of Federal Claims that do not allow the IRS to bring third parties into the litigation.  In district court cases involving the trust fund recovery penalty, the IRS counterclaims against the taxpayer bring the suit for any unpaid balance on the penalty and brings third party complaints against all of the other individuals or entities assessed the penalty for the same period(s).  Since the IRS could not bring third party complaints in the Court of Federal Claims, it sought to bring the litigation against all responsible parties in the district court in the Western District of Texas.  In such a suit the IRS could join all potentially responsible persons in the same case and sit back and watch them point fingers at each other.  In the Court of Federal Claims the case would just be the IRS against one of the potentially responsible persons.  Other reasons for choosing the Court of Federal Claims over the local district court may also have existed for Rachael’s taxpayer and other reasons have motivated the Government to try this same forum shopping technique in courts other than the Court of Federal Claims.  The benefits sufficiently concerned the Department of Justice that it went and filed affirmative litigation in the Western District of Texas seeking to effectively move the litigation of this issue from Washington, D.C. to Texas.

In the Beard case the Court of Federal Claims addressed the same tactic involving the same district.  The proposed responsible officer in Beard filed suit in the Court of Federal Claims on August 25, 2010.  After answering the case on December 27, 2010, and filing a counterclaim for the unpaid balance, the Government filed a suit to reduce the assessment to judgment in the Western District of Texas on January 11, 2011.  The Department of Justice filed a motion to suspend the Court of Claims case pending the outcome of the proceeding in Texas and the Beards opposed the motion seeking an injunction against the Texas litigation pursuant to IRC 6331(i)(4)(A)&(B).  The Court of Federal Claims enjoined the Texas litigation after carefully analyzing the language of the statute.  An effort to seek an interlocutory appeal of this issue failed.  101 Fed. Cl. 100 (Sept. 7, 2011), aff’d, 451 Fed. Appx. 920 (Nov. 3, 2011).

The result in Beard was duplicated in Kaplan.  Several other cases deciding this issue are captured in language from Thomas v. United States, 2012 WL 10235746 (W.D. Wis. 2012):

“More recently, however, courts routinely have denied motions to stay and enjoined later-filed collection actions pursuant to 26 U.S.C. § 6331(i). See, e.g., Beard v. United States, 99 Fed. Cl. 147 (Fed.Cl.2011) (providing extensive discussion of the statutory language and legislative history in finding that the government’s later-filed action to determine TFRP liability was a “collection action” under 26 U.S.C. § 6331(i) and enjoining the government’s action); Nickell v. United States,  No. 4:08CV319, 2009 WL 2031915 (E.D.Tex. Apr. 2, 2009); Conway v. United States, No. 4:04CV201, 2009 WL 2031856 (E.D.Tex. Mar. 26, 2009); Rineer v. United States,  79 Fed. Cl. 765 (Fed.Cl.2007); Swinford v. United States,  No. 5:05CV–234–R, 2007 WL 496376 (W.D.Ky. Feb. 9, 2007), vacated on other grounds, 2008 WL 4682273 (W.D.Ky. Jun. 20, 2008); cf. Kennedy v. United States,  95 Fed. Cl. 197, 206–07 (Fed.Cl.2010) (declining to enjoin collection action as to one tax period where that action covered seventeen tax periods and was already underway).”

While the 6331(i) decision in Kaplan is not novel and it was conceded by the Government, it is an important issue to follow if the IRS continues the practice of seeking to move venue in trust fund litigation by seeking to bring suits to reduce the liability to judgment in a venue viewed by it as more favorable than the forum choice made by the taxpayer. If the concession here means the IRS has dropped the effort to seek an alternate forum in cases of this type, it is also important to know that the issue will no longer exist.  Stay tuned for Rachael and Paul’s article on this subject.

Mr. (Carlton) Smith Goes to Washington…on Appellate Venue and Review Standard in CDP

Earlier today, Keith posted regarding appellate venue in Tax Court cases, and at the end of his post indicated that Carlton Smith had recently sent a letter to Congress regarding venue and its impact on low income taxpayers.  Mr. Smith’s letter, although discussing venue, comes down to appropriate review in CDP cases, and whether it should be de novo or limited only to the administrative record.


We’ve recreated Carlton’s letter below.  Any errors are undoubtedly ours and not his.

Re:       Comment on sec. 63 of the Discussion Draft Of Provisions To Reform Tax Administration
Dear Sir or Madam,

I am the former director of the Cardozo School of Law Tax Clinic.  I served in that capacity for over ten years until I retired this past summer.  Even though I retired, I am continuing to represent low-income taxpayers pro bono whose cases had started at the clinic.  And I am also keeping involved with a number of cases where I filed an amicus brief to aid low-income taxpayers.

One of the cases in which I submitted an amicus brief is Byers v. Commissioner, D.C. Cir. Docket No. 12-1351.  A copy of my amicus brief in that case is attached — the version that Tax Notes Today thought was significant enough to publish at 2013 TNT 63-18.  Byers presents in litigation the issue that section 63 of your discussion draft is directed at prospectively resolving against the position for which Mr. Byers and I argued current law should be interpreted.  The issue is the proper venue on appeal from Tax Court Collection Due Process decisions.

I can’t speak for Mr. Byers, but the reason that I supported him on his venue argument that the correct venue under current law is the D.C. Circuit was not out of real belief that the D.C. Circuit was the best venue as a policy matter.  Rather, my argument on venue was made to accomplish an unrelated change in the law.  I am concerned that you may have been informed by the IRS that the amendment proposed by section 63 to IRC section 7482(b)(1) to place all CDP appeals from the Tax Court into the regional Circuits of residence is only for the convenience of the taxpayers.  In fact, as the DOJ attorney argued to the D.C. Circuit in the Byers oral argument on October 25, what is really at stake is something else:  the record rule in Tax Court CDP proceedings.  My venue argument was made because I wanted to retain the Tax Court’s view of what a CDP proceeding in the Tax Court should encompass, while the IRS and DOJ are trying to retain the benefit of contrary rulings made by three regional Circuit Courts of Appeals.

Below, I will explain the record rule issue that section 63 is designed by the IRS to affect.  I will also point out a number of other areas of jurisdiction given to the Tax Court over the last 40 years that section 63 does not address, but the Committee should consider adding or not adding to section 63.  Finally, I note that I do not object to section 63 so long as a new provision is added to section 6330(d)(1) enshrining the Tax Court’s current view of its proceedings in CDP cases, so that all taxpayers living countrywide get treated the same with respect to the record rule issue that is really at stake when CDP venue on appeal is decided in Byers.

Before describing the record rule, I wanted to remind you that venue on appeal can have effects on how the Tax Court rules in all of its cases.  In Lawrence v. Commissioner, 27 T.C. 713 (1957), the Tax Court held that it was created as a national court and had its own precedent that it would follow regardless of where a case was likely to be appealed.  Only 13 years later, after much criticism of Lawrence, the Tax Court modified that holding to state that where a court of appeals to which a case was appealable under section 7482(b) had ruled on a particular issue opposite from the Tax Court’s existing precedent on the issue, the Tax Court would enforce the law in the manner of the Court of Appeals’ interpretation (even though the Tax Court still thought the Court of Appeals wrong).  Golsen v. Commissioner, 54 T.C. 742, 756-757 (1970), affd. on other issue 445 F.2d 985 (10th Cir. 1971).  The Golsen rule is the nub of the issue that I am writing you about.

Now, the record rule issue:  In Robinette v. Commissioner, 123 T.C. 85 (2004), the Tax Court held that a CDP appeal in the Tax Court under section 6330(d)(1) is not limited to the administrative record created by the taxpayer with the IRS Appeals Office conducting the CDP hearing, but is a trial de novo as to evidence (though, in another case, the Tax Court has stated that the issues in the Tax Court proceeding are limited to only those previously raised to Appeals.  Giamelli v. Commissioner, 129 T.C. 107 (2007)).  This de novo Tax Court CDP proceeding as to evidence is true even though as to all issues other than underlying liability, the Committee reports accompanying the enactment of CDP have directed the Tax Court to apply a standard of review of abuse of discretion.  So, the Tax Court applies a scope of proceeding that is de novo, though the standard of review in most cases is abuse of discretion.  (By the way, that split between scope and standard is not unprecedented in the Tax Court’s deficiency jurisdiction, as the author of the Robinette opinion pointed out.)

In my experience, most taxpayers in CDP hearings at Appeals are pro se.  Since they are already in debt to the IRS, they can’t afford representation, and many of their matters are too small to merit the expenditure of professional fees, even if the taxpayers could afford representation.  They often do inadequate jobs of creating a record about their financial situation.  Then, when the Appeals employee issues the notice of determination upholding either the levy or lien filing, the taxpayers read the notice and see that there were issues of interest to the Appeals employee that the taxpayers were not aware of and that they could have responded to with documents or testimony had they realized these were important.  The taxpayers need a second chance to make that response in a Tax Court proceeding.  This is the same dynamic that for years has applied to low-income taxpayers under audit and why the Tax Court, under its deficiency jurisdiction at section 6213(a), holds a trial de novo as to evidence.  So, I strongly support, as a policy matter, the Tax Court’s Robinette holding that its CDP proceedings, as well, are de novo as to evidence.

Unfortunately, since CDP was enacted in 1998, nearly all taxpayers and the IRS, rather uncritically, have treated the regional Circuits as the venue on appeal from Tax Court CDP decisions.  After the Tax Court ruled in Robinette, it was reversed by the Eighth Circuit, which held that, since abuse of discretion was the standard of review, under the Administrative Procedures Act and ordinary principles of administrative law, the standard of review dictates the scope of the review proceeding, which should be limited to the administrative record.  439 F.3d 455 (8th Cir. 2006).  The Eighth Circuit’s rule of limiting a litigant to the administrative record makes a lot of sense when, say, a large, represented corporation is challenging the outcome of a regulatory administrative hearing.  But, it makes little sense in the world of mostly unrepresented, unsophisticated taxpayers and the informal record created in the typical IRS CDP hearing.  Indeed, for similar reasons, the Ninth Circuit earlier this year ruled that section 6015(e) innocent spouse cases in the Tax Court where the issue is requested equitable relief under section 6015(f) are not limited to the administrative record.  As the Ninth Circuit stated, “Many of the taxpayers who seek innocent spouse relief share Wilson’s limited educational background, lack of access to essential documents, and inability to hire counsel. Taxpayers in Wilson’s position may have understandable trouble comprehending, and thus fully complying with, the IRS’s process in considering requests for equitable spouse relief or establishing a complete record with the agency. Allowing the Tax Court to review a supplemented and up-to-date record under these circumstances is entirely consistent with the statutory structure of sec. 6015 and Congress’s direction that the Tax Court determine the appropriate relief.” Wilson v. Commissioner,705 F.3d 980, 992 (9th Cir. 2013) (footnote omitted). (In Wilson, the Ninth Circuit also held that a de novo standard of review should apply to 6015(f) cases.  The IRS has since decided to acquiesce in the rulings in Wilson going forward;  Chief Counsel Notice CC-2013-011 (Jun. 7, 2013); but not on the similar record rule issues in CDP.)

After the Eighth Circuit overruled the Tax Court in Robinette, the First and Ninth Circuits also ruled on the record rule issue — agreeing with the Eighth Circuit that Tax Court CDP proceedings are limited to the administrative record. Murphy v. Commissioner, 469 F.3d 27, 31 (1st Cir. 2006); Keller v. Commissioner, 568 F.3d 710, 718 (9th Cir. 2009).  No other Circuit — including the D.C. Circuit — has ruled either way on this Tax Court CDP record rule issue.

Like the IRS and most litigants, the Tax Court over the years has rather uncritically assumed that CDP venue on appeal tracks that of venue on appeal of its deficiency cases — i.e., venue on appeal is to the regional Circuit in which the individual petitioner resided when the Tax Court petition was filed.  Of course, this is the issue now being litigated in Byers v. Commissioner.  And, at oral argument in Byers on October 25, 2013, it seemed pretty clear that the D.C. Circuit judges could not square this assumption with the literal language of the venue statute.  But, because the Tax Court has maintained this venue on appeal assumption, it has applied its Lawrence/Golsen rule such that in CDP proceedings where the individual taxpayer lives in the First, Eighth, and Ninth Circuits, the Tax Court limits the taxpayer to the administrative record.  See, e.g., Klingenberg v. Commissioner, T.C. Memo. 2012-292.  In the CDP proceedings of individual taxpayers living in all other Circuits, the Tax Court follows its own precedent and holds a trial de novo as to evidence.  See, e.g., Murphy v. Commissioner, 125 T.C. 301, 313 n. 6 (2005).

My goal in trying to get the D.C. Circuit in Byers to hold that only the D.C. Circuit is the correct venue on appeal for CDP cases from the Tax Court is to make the situation such that the Tax Court applies its Lawrence/Golsen rule on this CDP record rule issue as stated in Robinette (i.e., trial de novo) for individuals living throughout the country, since the D.C. Circuit has not yet ruled on the issue.  At least this gives a temporary taxpayer-friendly ruling countrywide application until, perhaps, the D.C. Circuit finally decides to rule on the record rule issue.

Section 63, if enacted, would essentially confirm that a minority of the country must have its Tax Court CDP proceedings limited to the administrative record, while a majority of the country can have a de novo Tax Court CDP proceeding.  I am not sure whether the IRS made this record rule outcome clear to you as its major goal when it asked for you to consider enacting section 63.

I do not, in fact, object to the enactment of section 63 with respect to CDP and 6015(e) cases of the Tax Court.  I am happy to have such cases decided by the regional Circuits.  However, my lack of objection is conditioned on Congress amending section 6330(d)(1) to clarify that the Tax Court’s holding in Robinette is the appropriate one for taxpayers countrywide.  So, in addition to section 63, I would urge an amendment that adds a sentence to the end of section 6330(d)(1) reading as follows:  “In any proceeding by the Tax Court under this paragraph, the Tax Court shall allow into evidence both such administrative record created at the Office of Appeals’ hearing and such additional evidence on the issues raised at the hearing as the Tax Court deems relevant.”

The second issue I wanted to raise has to do with the fact that, while section 63 addresses venue on appeal former Tax Court CDP and 6015(e) proceedings, it does not address a number of other jurisdictions given to the Tax Court over the last 40 years for which section 7482(b)(1) provides no specific rule.  Many of these unnamed jurisdictions may not fairly be described as involving a “petitioner seeking redetermination of tax liability” (within the meaning of the exceptions at subparagraphs (A) and (B) that direct such cases’ appeals to the regional Circuit courts), so, arguably, the flush language at the end of section 7482(b)(1) directs appeals of these Tax Court jurisdictions (absent stipulation to the contrary) only to the D.C. Circuit.

The following jurisdictions of the Tax Court do not have any specific subparagraph in section 7482(b)(1), so Tax Court decisions in these cases are arguably all appealable only to the D.C. Circuit under the flush language at the end of that paragraph:

1.  Section 7430(f) proceedings to review the IRS’ grant or denial (in whole or in part) of an award of reasonable administrative costs where there was no underlying Tax Court proceeding;

2.  Section 7479 Tax Court declaratory judgment actions relating to eligibility of estates to make installment payment of estate taxes under section 6166;

3. Section 6404(h) Tax Court actions to review the IRS failure to abate interest attributable to unreasonable errors or delays;

4.  Section 7436 Tax Court proceedings for determination of employment status;

5. Section 7623(b)(4) Tax Court proceedings to consider petitions from whistleblowers who complain of insufficient IRS award; and

6. Section 6110(d)(3), (f)(3)(A), (f)(4)(A), and (h)(4) disclosure actions.

Congress should consider whether any of these six jurisdictions should be specifically named in the venue statute and that appeals be directed to courts other than the D.C. Circuit.

In fact, in 1976, Congress specifically discussed in the Committee reports accompanying the creation of the disclosure actions that Congress expected the D.C Circuit (under the flush language of section 7482(b)(1)) to be the sole venue on appeal, absent stipulation to the contrary.  H.R. Rep. 94-658 at 324-325, 1976-3 (Vol. 2) C.B. 697, 1016-1017; S. Rep. 94-938 at 313-314, 1976-3 (Vol. 3) C.B. 49, 351-352.

There was no discussion in any of the Committee reports with respect to any of the other five jurisdictions as to where Congress expected venue on appeal to go from the Tax Court.

So far, only one jurisdiction, section 7623(b)(4), has generated any comment as to the proper venue on appeal:  In Whistleblower 14106-10W v. Commissioner, 137 T.C. 183, 193 n. 12, the Tax Court wrote: “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 Department of Justice recently forced a whistleblower who appealed the loss of his Tax Court case to the Eighth Circuit, where he lived, to be transferred to the D.C. Circuit under a similar statutory reading.  A copy of the government’s motion to transfer in the Cohen case is attached.  The motion was unopposed, so the case was transferred and is presently pending before the D.C. Circuit.  Congress should consider whether centralizing all whistleblower award cases in the D.C. Circuit makes sense.

Since all of these Tax Court jurisdictions (including whistleblower) are infrequently the subject of petitions, it may make sense to have only one court be the sole location of appellate litigation so that a body of consistent precedent can be created that applies countrywide.  On the other hand, in some of these cases, like the administrative fees cases, there likely would be little money at stake in any case so that taxpayer convenience might dictate they be directed to the regional Circuits. I don’t have a strong opinion about any of these jurisdictions, but think that Congress should discuss them — at least in the Committee reports — if it is making the decision not to specifically name them because it prefers that all of their appeals be made to the D.C. Circuit.

I would be happy to speak to anyone at the Committee to discuss the issues presented in this e-mail.

Carlton M. Smith, Esq.


Appellate Venue in Tax Court cases – Taking Care in Applying Golsen in non-deficiency cases

For many years the Tax Court or its predecessor, the Board of Tax Appeals, did not look to the Circuit where venue for an appeal of the Tax Court’s decision would lie in deciding the outcome of a case before it.  Unlike a District Court with a specific circuit to which it felt bound by Circuit Court authority in the circuit in which they sat, the Tax Court focused on reaching the correct outcome of the case unfettered by the controlling precedent that applied in the circuit to which an appeal of the case would lie.  The Tax Court’s failure to recognize the controlling authority of the circuit which had venue for the appeal caused taxpayers or the government to appeal in order to obtain a favorable result in those situations where the Tax Court’s view of the law differed from circuit precedent.

In 1970, a year after becoming an Article I Court, the Tax Court changed its practice and announced in Golsen v. Commissioner, 54 T.C. 742 (1970), aff’d on other issues, 445 F.2d 985 (10th Cir. 1971), that it would follow the precedent of the Circuit Court to which the appeal of the Tax Court case would lie.  Most cases do not involve a split of authority among the circuits and the Golsen rule does not have significant meaning in the outcome of the case.  Occasionally however, a major split develops among the circuits and the application of the Golsen rule becomes critical to the outcome of the case.  Of course, a predicate to the application of the Golsen rule is the determination of appellate venue.  In some of the newer areas of Tax Court jurisdiction, and perhaps some that are not so new, that question is now up in the air.


The Tax Court has traditionally served as the location for litigating whether a taxpayer owes the tax proposed by the IRS in a notice of deficiency.  IRC 7482, the controlling statute for appellate venue in Tax Court cases, was built with the traditional role of the Tax Court in mind.  In recent decades Congress has demonstrated its confidence in the Tax Court by making it the court for several proceedings beyond the straight forward determination of taxes based on a notice of deficiency including – collection due process, innocent spouse, employment status, exempt status and whistleblower awards.  The appellate venue for these less traditional cases is not described in IRC 7482 leaving the flush language of IRC 7482(b)(1) as the likely controlling direction from Congress.  The flush language provides “If for any reason no subparagraph of the preceding sentence applies, then such decisions may be reviewed by the Court of Appeals for the District of Columbia.”

Then law student James Bamberg seems to have been the first to notice what no one else had seen.  In 2008 he wrote the winning article for the Tannenwald Competition entitled “A Different Point of Venue: The Plainer Meaning of Section 7482(b)(1).” In the article, he identified the disconnect between the appellate venue statute and the newly created areas of Tax Court jurisdiction.  He wrote:

Congress intentionally designated the types of Tax Court proceedings that are to be appealed in the regional circuit courts by enumerating them. Correspondingly, it chose not to include proceedings that rise from “newer” areas of Tax Court subject matter jurisdiction. Seven of these more recent jurisdictional grants, not specifically listed, are: (1) in 1976, the right to review disclosure actions; (2) in 1988, the right to review Service denials of reasonable administrative costs; (3) in 1996, the right to review Service denials of requests for interest abatement; (4) in 1997, the right to review worker classification disputes; (5) in 1998, the right to hear appeals of Service determinations in “collection due process” proceedings; (6) in 1998, the right to review Service denials of relief from joint and several liability for income taxes; and (7) in 2006, the right to review Service awards to whistleblowers. Consequently, because Congress chose not to list these seven jurisdictional grants within section 7482(b)(1), the Tax Court decisions that spring from these jurisdictions fall squarely in the D.C. Circuit Court for review.

After the publication of this article, which points out that the D.C. Circuit essentially became the National Court of Tax Appeals for the cases not enumerated in section 7482, some practitioners, the Tax Court and the government eventually began to take notice.  We wrote about the Byers case, in which the taxpayer is currently arguing, inter alia, that the D.C. Circuit is the court where appellate venue lies in CDP cases.

The Tax Court wrote about the venue issue in Whistleblower 14106-10W v. Commissioner, 137 T.C. 183, 193 n. 12 (2011) in which it said “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).”

The Department of Justice Appellate Section filed Commissioner’s Motion to Transfer Appeal to the United States Court of Appeals for the District of Columbia Circuit” on December 27, 2012, in the whistleblower case Cohen v. Commissioner, 139 T.C. No. 12 (2012). Mr. Cohen, who lived in New Jersey at the time of filing his Tax Court petition, lost in the Tax Court and filed an appeal in the Third Circuit.  The Department of Justice quoted the language of IRC 7482(b)(1) in its motion and then stated “Cohen’s appeal does not fit within any of the six subparagraphs listed in Section 7482(b)(1).  Accordingly, venue lies in the United States Court of Appeals for the District of Columbia Circuit under the flush language at the end of Section 7482(b)(1).”  In a footnote the motion notes that Section 7482(b)(2) permits a Tax Court decision to be reviewed by any Circuit Court upon stipulation of the parties.  The motion further noted that when appeal is taken to the wrong Circuit Court that court “may transfer the appeal to the proper court in lieu of dismissing the appeal.”

While it is not clear yet that the D.C. Circuit agrees with the Bamberg interpretation of appellate venue and, if it does, whether it agrees with respect to all seven of the case types identified by Mr. Bamberg, the implications here are significant for the application of the Golsen rule and for the creation of a de facto National Court of Tax Appeals for many of the cases which the Tax Court decides.  The Byers case deserves close observation since where your Tax Court case heads on appeal can have an important role in the outcome of the case at the Tax Court.  The D.C. Circuit may soon take on a much more prominent role in the federal tax area.

This issue is addressed in one of the legislative proposals Les wrote about last week. Now Carlton Smith has written a letter to Congress on this issue discussing the legislative proposal and particularly the impact it will have in the Collection Due Process issue where Circuit Court authority exists outside of the D.C. Circuit for limiting the record before the Tax Court.  Such a limitation hurts low income taxpayers who frequently start these cases unrepresented.  We will post more on that letter shortly.

***update – Carlton Smith’s letter can be found here***