William Schmidt bring us the most recent designated orders. The second order concerns a Collection Due Process (CDP) case filed in the Tax Court eight years ago. Carl Smith and I wrote an article for Tax Notes about the time this Tax Court case was filed in which we demonstrated that CDP cases took longer to work their way through Tax Court than deficiency case. A few cases like the one described below could skew those statistics. While the taxpayers have held the IRS at bay for eight years through the filing of their CDP petition, their ability to delay a determination points to a problem with the process not caused by the IRS or the Court. Keith
For the week of June 11 through June 15, only 2 Tax Court orders are noted as designated orders. Perhaps summer vacations caused this week’s decline in designated orders, but this posting will focus on both orders.
Confusion Regarding Whistleblowers and Inmates
Docket No. 13502-17W, Gregory Charles Krug v. C.I.R. (Order here).
This week’s order seemed confusing on its face so this analysis also incorporates the previous order issued on May 29 (here). This is a whistleblower case where the IRS filed a motion for summary judgment. Within that motion, the IRS relies on a Form 11369, Confidential Evaluation Report on Claim for Award. Within that form, there is a statement regarding how inmates earning wages might owe federal income tax (withholding is dependent on the amount of wages paid which is less than the minimum wage). The Court did not see the relevance of the statement about inmates to the case at hand. The May order set the IRS motion for hearing on June 4.
read more...The petitioner did not appear for the hearing. In fact, the petitioner has not been responsive to orders beginning February 8. Looking at the docket, there could be an issue of whether the Court has the petitioner’s correct address.
The June 13 order is that the respondent shall file a memorandum on or before August 3 addressing the Court’s concerns with the Form 11369’s relevance. The petitioner has the same deadline to file a memorandum regarding his position on the form’s relevance. The Court has taken the motion for summary judgment under advisement.
Takeaway: It is unclear on its face the connection between inmate taxation and a whistleblower case so understandably the Court wants an explanation for relevance. It is always best to make arguments that relate to the issues at trial. A longer post dedicated to this case will appear later today.
How Long Can Trial Be Delayed?
Docket No. 1973-10 L, Douglas Stauffer Bell & Nancy Clark Bell v. C.I.R. (Order to Show Cause here).
The Bells filed their petition with Tax Court regarding collection due process regarding notices of levy in January 2010, with a trial scheduled for March 2011. Then, the Bells began to file petitions in bankruptcy court for Chapter 13 bankruptcies. Each time, the automatic stay due to the bankruptcy petition halted proceedings in Tax Court.
- First case: The Bells filed in January 2011. The bankruptcy court issued an Order of Dismissal August 11, 2011, stating the Bells failed to comply with the provisions of their Chapter 13 plan or obtain confirmation of a plan. The automatic stay was lifted and the Tax Court case was scheduled for trial May 2012.
- Second case: The Bells filed again November 2011. The bankruptcy court Order of Dismissal was issued November 19, 2012, the automatic stay was lifted and the Tax Court case was scheduled for September 2013 trial.
- Third case: The Bells filed again June 2013. The bankruptcy court Order of Dismissal was issued February 24, 2016, the automatic stay was lifted and the Tax Court case was scheduled for trial at a session beginning May 22, 2017.
When the case was called, the Court heard the Commissioner’s motion to dismiss, for lack of jurisdiction, the Bells’ contentions regarding notices of lien (since their petition was on notices of levy). The Bells admitted they did not file a petition or anything else on the notices of lien. The Court indicated the motion was granted and the case would proceed only on the levy issues. At the hearing, Ms. Bell indicated her objection to the ruling and desire to appeal. The Court explained their ability to appeal to Ms. Bell. In the Court’s order, the case was remanded to the IRS Appeals Office for an administrative hearing. The remand was effectively a continuance of trial.
With the supplemental hearing, the Bells did not provide a Form 433-A financial information statement so IRS Appeals issued a supplemental notice of determination against the Bells, sustaining the proposed action.
Following this hearing, the Tax Court case was ripe to proceed on trial for the levy issues of 2006 and 2007. However, the Bells filed a notice of appeal to the U.S. Court of Appeals for the Fourth Circuit on August 23, 2017. The Tax Court explained this was incorrect procedure at the May 22, 2017, hearing and the Court of Appeals dismissed the case as premature on January 22, 2018, with a mandate on March 16 stating they may only exercise jurisdiction over final orders or over certain interlocutory and collateral orders. Since the order was none of those, the case was dismissed for lack of jurisdiction.
The Tax Court held a telephone conference on March 22 with petitioner Nancy Clark Bell and counsel for the Commissioner. The case was set for trial on August 6 at Winston-Salem, North Carolina. The Court’s order stated the parties are to communicate and cooperate, exhausting all possibilities of settlement, urging petitioners to take advantage of settlement offers from respondent’s counsel. Additionally, the petitioners were advised of the North Carolina Central University School of Law, Western North Carolina LITC, and North Carolina Bar Association Tax Court Pro Bono Program as options for volunteers that assist self-represented taxpayers.
The Commissioner’s status report on June 13 stated that the Bells have not been in contact with respondent’s counsel since March 2018. In the Court’s order June 14, there is discussion of the Bells, stating their inaction is unsatisfactory and that their approach has been consistent with their “dilatory handling of this case since filing it more than 8 years ago.” The Court touches on the delay from the 3 bankruptcy filings with eventual dismissals due to failure to comply with the chapter 13 plans, the remand to IRS Appeals with a failure to provide financial information, and the premature and pointless appeal to the U.S. Court of Appeals that was also dismissed.
The Court states the March 22 order was intended to provide the Bells with opportunity to provide information planned for at trial or facilitate settlement, giving them four and a half months before trial, but that has been ignored.
The June 14 order states that the Bells should show cause no later than June 28 why the Court should not dismiss their case for failure to prosecute. The Court instructs the Bells of their options regarding what to do if they disagree with the Commissioner’s report, intend to give up the case, intend to bring the case to trial, or would like a telephone conference.
Takeaway: While the Bells may have been sincere in their varied court filings, the results have been to bring about significant delay in this Tax Court case. It is easy to sympathize with the Court’s frustration over a case that is still not resolved over eight years after the Bells filed their petition. Whether sincere or not, it is best not to use tactics that may delay trial and frustrate a judge. It is also worth following a judge’s advice, ranging from how to appeal a decision to how to prepare for trial or settle a case.
About William Schmidt
When Keith and I wrote our article, “Tax Court Collection Due Process Cases Take Too Long”, Tax Notes, Jan. 24, 2011, a few of the CDP cases filed in the first six weeks of 2008 that we examined were still open, and we deliberately did not include them in our computation of the average time in which it takes a CDP case to get through the Tax Court to prevent excessive skewing. This means, however, that the Tax Court CDP case duration problem is worse than even we quantified in our article.
Today (July 5, 2018) Judge Gustafson signed the “Order and Decision” in the Bell case, dismissing their 2010 petition and deciding that IRS may proceed with collection of 2006 and 2007 income taxes.
Meanwhile, a PACER search reveals that the Bells filed yet another Chapter 13 petition on December 7, 2017, which was dismissed on May 22, 2018 because no plan payments were made. They were in bankruptcy when the telephone conference call occurred.
File this case under “when bad things happen to good people.” Their second 2011 bankruptcy filing indicates they owed IRS $10,366 for 2007 and $31,230 for 2009 (a year not included in the CDP proceeding). They also owed North Carolina $37,602 in state income taxes for 2007 and 2008.
In 2011, Mrs. Bell was collecting unemployment compensation and Mr. Bell expected to earn about $2,200 a month in wages as a salesman, having been unemployed earlier in the year. They had three dependent children. In 2009, though, their combined incomes had been $244,351. The bottom must have fallen out of some market.
IRS was not the primary cause of their bankruptcy filings. They owned two homes. One of them they were losing to foreclosure. Its value was $199,650 and the mortgage was $365,234. Mrs. Bell, however, had inherited a house from her mother, that they now intended to keep as their primary residence. It was worth $300,000 with a mortgage of $230,027 — also in foreclosure. The 2017 filing shows they have managed to keep that home.
The nearest low-income taxpayer clinic to Morehead City is in Durham, 174 miles away. There are IRS offices in Greenville and Wilmington, both about a two-hour drive. But is this an IRS tax problem? It’s likely the account is currently not collectible, and all they have done with the consecutive filings is to extend the statute of limitations. Working with the North Carolina state tax collectors might be more of a problem. Mostly, though, it seems to me they want to keep their house. Zillow says it’s a 4-bedroom with 1,692 square feet, worth $335,247. That’s more than the median home price in Morehead City, of $216,000 — but not that much more.
Congress could have written the rule that a bankruptcy filing dismisses a CDP case and moves it to bankruptcy court, where the taxpayer/petitioner must abide by its decision or dismissal. “Choose Your Docket,” rather than “Taste of Two Apples,” would eliminate these delays, saving judicial and IRS resources.