Designated Orders: 7/23 to 7/27 Part Two

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Patrick Thomas of Notre Dame Law School returns with Part Two of this week’s designated orders, focusing on the Coffey case, which as Patrick mentions was discussed in two recent guest blog posts by Kandyce Korotky and Joe DiRuzzo. Christine

Intent to “File” vs. Intent to File a “Return”: A Follow-up to the Court’s Divided Coffey Decision

Docket No. 4949-10, James Coffey v. C.I.R. (Order Here)

This latest (though likely not final) installment of the Coffey case comes on Respondent’s motion for reconsideration. Kandyce Korotky and Joe DiRuzzo have previously covered interesting aspects of the Court’s fractured decision in Coffey here and here.

Briefly, the January 2018 decision in this case holds that Petitioners filed returns with the Service when the United States Virgin Islands Bureau of Internal Revenue (VIBIR) electronically forwarded copies of the Petitioners’ 2003 and 2004 Forms 1040 to the IRS Philadelphia Service Center. Therefore, when the Service determined that the Coffeys were not bona fide residents of the U.S. Virgin Islands, the statute of limitations on assessment had already begun to run. When the Notice of Deficiency was issued to the Coffeys, the statute had expired.

As noted in Kandyce’s and Joe’s posts, the decision was highly fractured. Judge Holmes was assigned the case and issued the decision, which four other judges joined. Judge Thornton wrote an opinion concurring in the result only, which seven judges joined. Finally, Chief Judge Marvel wrote a dissent, which three judges joined. Under sections 7460(a), 7444(c), and 7459(a) & (b), Judge Holmes’ opinion was the opinion of the Court, because he was assigned the case. Yet, the majority of the Tax Court didn’t agree with the rationale of that opinion. Kandyce and Joe raise interesting questions regarding the precedential value of this opinion—and of Tax Court opinions in general.

Now, Respondent filed a motion for reconsideration of Judge Holmes’ opinion, which was—naturally—assigned to Judge Holmes for disposition. Rule 161 governs motions for reconsideration in the Tax Court, but provides nothing more than timing requirements. The Tax Court therefore adjudicates such motions pursuant to Federal Rule of Civil Procedure 60(b), which governs motions for reconsideration in federal court. Under FRCP 60(b), a court may “relieve a party . . . from a final judgment, order, or proceeding” primarily for issues affecting the propriety of the decision, such as newly discovered evidence or fraud. Courts have also granted motions to reconsider if the court “committed clear error or the initial decision was manifestly unjust.” See, e.g.School Dist. No. 1J v. ACands, Inc., 5. F3d 1255, 1263 (9th Cir. 1993).

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Respondent argues that Judge Holmes should reconsider the Court’s decision because the Court committed two “substantial errors.” First, the Court found Respondent conceded that a third party filing a taxpayer’s return—without more—wouldn’t affect whether a return was “filed” under section 6501. Second, the Court stated that it was undisputed that the Service actually processed the returns from VIBIR in Philadelphia. (This second issue involves whether VIBIR or the IRS stamped Petitioner’s return, but from Judge Holmes’ explanation, it doesn’t seem fairly in question that the IRS did so). From the context, I presume Respondent asked only for the Court to clarify its statements as to these two points—not to vacate or reverse the decision entirely.

Judge Holmes clarifies the statements, but not to the Service’s (or the dissent’s) favor. He finds that the Service did indeed concede the first point, based on Respondent’s statements during hearings, trial, and on the briefs. The subjective intent of a third party, Respondent said in a memorandum supporting a prior motion, informs not whether the return has been filed, but whether the document filed is a return (under the Beard test). Judge Holmes characterizes Respondent as trying to back away from this statement now, as the crux of the case turned on whether a return that VIBIR sent to the Service (but which the Coffeys didn’t intend to send to the Service) counts as “filed.” He notes that counsel conceded the point directly in an oral argument hypothetical on an (earlier) motion for reconsideration, but never corrected this concession.

Even if Respondent did concede the point, Judge Holmes still addresses whether the concession misstated the law. After all, the concession was central to the case, and the Court could have gotten the law wrong.

Interestingly, Judge Holmes responds here to Chief Judge Marvel’s finding in her dissent that a taxpayer must subjectively intend to file a return for the statute of limitations to run under section 6501. Under section 6501, she argues, a return only starts the statute if it is the “return required to be filed by the taxpayer.” Not by VIBIR or any other third party that isn’t duly authorized to act for the taxpayer.

Judge Holmes separates this into two concerns: one regarding a third-party filing, and another regarding a taxpayer’s subjective intent to file a return. He finds, in contrast, that sending a return to the IRS via a third party does not affect whether the return is “filed” for purposes of section 6501. Further, he finds that a taxpayer’s subjective intent is not required for a return to be filed under section 6501 (whether sent via a third party or otherwise). Judge Holmes views section 6501 more broadly, arguing that “6501(a) answers the question of whose return’s filing starts the statute of limitations running”, rather than who must intend to file the return. Specifically, he finds that section 6501(a)’s exclusion of information returns from the definition of “return” provides the context to support this conclusion.

On the third party issue, Judge Holmes cites Allnutt v. Commissioner, T.C. Memo. 2002-311 and Winnett v. Commissioner, 96 T.C. 802, 808 (1991). Judge Holmes argues that both cases show that a third party may file a return with the correct office of the IRS, even if this third party wasn’t the taxpayer’s agent and the returns were sent without the taxpayer’s knowledge. In Allnutt, the taxpayer sent the returns to the district counsel, rather than the district director; in Winnett, the returns were sent to the wrong service center.

I’m not sure I’m convinced that this distinction matters, as the taxpayer in these cases clearly intended the returns to be filed with the Service. But distinction or not, it does strain credulity to argue that a third-party cannot “file” a return for a taxpayer. The Good Samaritan hypothetical to which Judge Holmes refers is persuasive. One could think of other hypotheticals (e.g., the Not-So-Good Samaritan, who alters a lost tax return’s direct deposit information) that would, from a policy angle, cause concern with the Service processing a third party return. But such a return would clearly not be the taxpayer’s return—i.e., not the return the taxpayer intended to file.

Judge Holmes next directly addresses intent issue, which formed the core of Chief Judge Marvel’s dissent. He relies again on Allnutt and Winnett for the proposition that intent to file the returns is not necessary. I think he conflates again here the notion for subjective intent to file in a particular place within the IRS, and the intent to file a return with the IRS at all. Again, I don’t find this distinction necessary to his conclusion regarding a subjective intent to file.

Judge Holmes then suggests that the dissent and Respondent are themselves conflating the Beard test—and its requirement that the taxpayer intend a document to be his or her return—with this purported subjective intent to file requirement. Indeed, these are separate questions. Judge Holmes runs through a litany of cases, which Chief Judge Marvel citeed approvingly in her dissent. He characterizes these cases as similarly conflating the “filed” and “return” requirements of section 6501 as both requiring a subjective intent requirement. These cases include Berenbeim v. Commissioner, T.C. Memo. 1992-272, Alnutt, Friedmann v. Commissioner, T.C. Memo. 2001-207, Espinoza v. Commissioner, 78 T.C. 412 (1982), and Dingman v. Commissioner, T.C. Memo. 2011-116. In each of these cases, the Court referenced some notion of a taxpayer’s intent to file a return, which Chief Judge Marvel uses in her dissent to support her argument that some intent to file requirement must exist. Judge Holmes dismisses all as either conflating the intent for a document to be a “return” under Beard, as dicta, or otherwise as not supporting an “intent to file” requirement.

Because Judge Holmes finds that the Court committed no substantial errors, he denies the motion for reconsideration.

Putting aside the very interesting merits of the intent to file requirement, this case nicely crystalizes the many problems with the designated order process, the Court’s aversion to formal opinions, and the precedential value of Tax Court’s opinions. I’ll be writing about this issue in future work.

Briefly stated, while I tend to agree with Judge Holmes on the merits, I find it problematic that Judge Holmes alone controlled the disposition of this motion, given the fractured nature of the underlying opinion. Because a single judge may independently “designate” an order, Judge Holmes could ensure that practitioners see this analysis (and did). However, designated orders can potentially serve to dispose of cases without the collaboration of other judges. Against the precedential background of division opinions, this would seem to relegate some difficult issues to non-precedential orders alone, without the benefit of the full court’s analysis.

I am further troubled that Judge Marvel could not consider Judge Holmes’ responses to her arguments in constructing her dissent. It is common practice in the Supreme Court to review competing drafts, such that the justices may respond to opposing concerns. Sometimes, this process can change the opinions of those on the other side. Presumably, Judge Marvel will not be able to respond formally to Judge Holmes’ contradiction of her arguments. This practice seems incongruous with a reflective judiciary.

None of this is to say that Judge Holmes deserves blame for this result. Indeed, the case is assigned to him, and under applicable Tax Court rules, he is charged with responding to any motions. Further, given the number of cases and importance of the Tax Court to tax compliance, reasons of judicial economy may favor case disposition by individual judges. But the Tax Court must balance judicial economy with the transparency and collaborative decision-making that the opinion process better enables.

Comments

  1. Carl Smith says:

    I assume that it is rare that a motion for reconsideration is filed on a case that has already gotten Tax Court en banc review. I am similarly troubled that only Judge Holmes got to rule on the motion.

    When I clerked at the Tax Court, Judge Nims wrote an opinion in the first commodity tax straddle case, Smith v. Commissioner, 78 T.C. 350 (1982). The opinion was adopted unanimously by the full court en banc. The IRS won the case on the ground that the particular transactions were not entered into for profit on the facts of the two companion cases involved (i.e., based on what the taxpayers were told about the lack of potential for economic profit). But, the IRS had hoped that the whole scheme would be held a sham in substance, having no tax effect. On the latter theory, the IRS wouldn’t have to litigate any other commodity tax straddle cases. So, even though it won the case in full, the IRS moved for reconsideration of the opinion, asking the court to rule that the transactions were shams. The Chief Judge at the time was Judge Tannenwald. Judge Tannenwald merely stamped “denied” on the motion, not even referring it either to Judge Nims or the whole court. I can attest to these facts because I helped Judge Nims draft the original opinion, and I was invited into the Chief Judge’s chambers (having been in an adjacent office on another matter) when Judge Tannenwald decided to stamp the motion as denied. When I returned to Judge Nims’ chambers and mentioned the motion’s denial to him, he was displeased that he had not even been consulted (even though he would have ruled the same way on the motion).

    I am still not sure what the Tax Court’s practice is or should be on motions for reconsideration of en banc opinions.

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