Professor Samantha Galvin of University of Denver Sturm College of Law brings us this week’s edition of Designated Orders. This week’s post looks at an order involving Section 6751 and an order involving the Court’s power to impose sanctions. Les
The Tax Court designated four orders last week and two are discussed below. The designated orders that are not discussed are an order that a petitioner respond regarding his objection to respondent’s motion for summary judgment (here) and an order denying a petitioner’s motion for reconsideration to vacate the Court’s decision and dismissal where petitioner repeatedly failed to file a disclosure statement as required by Rule 20(c) (here).
read more...Section 6751(b) Compliance is Designated Again
Docket # 13535-16SL, Adrian Antionette McGee v. C.I.R. (Order Here)
Here is yet another section 6751 designated order. After the Graev decision opened the door for these arguments, PT has posted frequently on the topic including, most recently, in a very informative designated order post dedicated to section 6751 a few weeks ago (here).
In this designated order, Judge Leyden is raising the issue of whether the IRS has complied with section 6751 when imposing an accuracy-related penalty. Judge Leyden also raised this issue in another (non-designated) order last week (here) which dealt with a failure to deposit penalty.
McGee is a pro se petitioner from Florida. Undoubtedly, she did not raise section 6751(b) non-compliance during her CDP hearing. As mentioned in our previous designated orders post, this issue is being treated slightly differently depending on the Judge. Judge Leyden appears to be one of the judges that does not think a taxpayer waives the section 6751(b) issue by not raising it.
In the present case, respondent filed a motion for summary judgment. Respondent’s motion was premature but petitioner didn’t object on that basis, so interestingly, the Court exercised its discretion and allowed the motion to proceed.
In case you haven’t been following the other posts, section 6751(b)(1) provides that, “a penalty cannot be assessed unless the initial determination of such assessment is personally approved (in writing) by the immediate supervisor of the individual making such determination or such higher level official as the Secretary may designate.” To demonstrate compliance with this section, respondent must show: 1) the identity of the individual who made the “initial determination”, 2) an approval “in writing”, and 3) the identity of the person giving approval and his or her status as the “immediate supervisor.” The settlement officer’s declaration stated that the requirements of applicable law or administrative procedure were met, but did not specifically verify that section 6751 requirements were met nor did it include any documents to substantiate that the requirements under the section were met.
The Court gives respondent three options: 1) prove that the requirements of section 6751(b)(1) were met, 2) prove that the “automatically calculated through electronic means” exception under section 6751(b)(2) applies and compliance need not be shown, or 3) concede the penalty.
The IRS must supplement its motion by August 15, and the petitioner may respond by August 30 – so we will wait in anxious anticipation to see where this one goes.
Section 6673 Penalty Imposed on Egregious Tax Protestor
Docket # 27787-16, Gary A. Bell, Sr. v. C.I.R. (Order Here)
The Tax Court sees a lot of tax protestors, in part because taxpayers do not have a lot to lose when petitioning the Tax Court. They can represent themselves, the tax liability is not required to be paid beforehand, and the court filing fee is not cost prohibitive and can be waived if the taxpayer can demonstrate economic hardship. The section 6673(a)(1) penalty is one of the Tax Court’s defenses against egregious tax protestors, and others who may meet the section’s criteria.
The petitioner in this case is particularly egregious. In the present case, he petitioned the Tax Court on CP71A notices for four different tax years. The CP71A notices are annual reminder notices informing the taxpayer of a balance due and do not provide a taxpayer with the right to petition the Court.
Petitioner had previously petitioned the Tax Court eight years ago for three out of the four years listed in his petition and the Court had rendered a decision for those years. As for the fourth year, neither a notice of deficiency (nor a notice of determination) had been issued. This meant the Court lacked jurisdiction for every year listed in petitioner’s petition.
As a result, in the present case, respondent filed a motion for summary judgment for lack of jurisdiction and requested that a section 6673(a)(1) penalty be imposed. Petitioner filed a Notice of Objection.
According to the Tax Court, “the purpose of section 6673 is to compel taxpayers to think and to conform to settled tax principles; it was designed to deter frivolity and waste of judicial resources.” In total, the petitioner had previously petitioned the Tax Court six separate times on various tax years using tax protestor arguments and had been warned about the imposition of the section 6673 penalty, to some degree, in all cases. Under section 6673, a penalty of up to $25,000 can be imposed whenever it appears to the Tax Court that proceedings before it have been instituted or maintained by the taxpayer primarily for delay; the taxpayer’s position in such proceeding is frivolous or groundless; or the taxpayer unreasonably failed to pursue available administrative remedies.
Due to the petitioner’s repetitively egregious behavior, the Court was convinced that petitioner instituted and maintained the proceeding for the purpose of delay and imposed a section 6673 penalty of $5,000.
Take-away points:
- The Court likely designated this order as a warning to other tax protestors who wish, or continue, to drain the Court’s resources in a similar way.
- The penalty is a necessary option for the Court since a taxpayer can take advantage of the Court’s time and resources, even when he or she has no basis on which to be there.
About Samantha Galvin
During my brief career at IRS National Office (1975-77), the greatest fear of IRS staff was that some mishandled case would end up in “the funny papers.” That was a reference to the columns of Jack Anderson, journalism heir to Drew Pearson, whose chronicles of government scandals great and small appeared in the pages of the Washington Post’s comics section.
Along with its coverage of designated orders, I propose that Procedurally Taxing have an occasional “Funny Papers” feature, with coverage of IRS trying to kill gnats with howitzers and consequently shooting itself in the foot. This week’s example is the case of Charles Edward Fagan (http://ustaxcourt.gov/UstcInOp/OpinionViewer.aspx?ID=11354), a lawyer in Buffalo who shuffled off to retirement in Florida, thinking he had paid all of the federal taxes he owed.
As Judge Gerber tells the story, “This collection case emanated from a March 16, 2015, notice to petitioner that respondent intended to proceed with collection of a 2011 income tax liability of $2,346.46. Petitioner sought a hearing alleging, essentially, that previous payments were misapplied and should have been applied to pay his 2011 tax liability. The March 16, 2015, notice was not petitioner’s first encounter with respondent. It was the culmination of a long and protracted history of collection and tax issues spanning more than 15 years.”
Fagan had been in Tax Court previously, in 2008, when a settlement agreement was reached that resulted in his payment, over a 12-month period, of all taxes owed (income taxes, and employment taxes). Nevertheless, “During 2013 petitioner received a notice that he owed additional interest and penalties for the very same years that had been resolved in the settlement and covered by the installment agreement. Petitioner pursued an administrative appeal and convinced the Internal Revenue Service (Service) that those matters had been resolved. Ultimately, the Service agreed.”
But an agreement with IRS can be an empty promise. “While petitioner was convincing respondent that liabilities had been duplicated, the Service seized $8,700 of petitioner’s funds and applied them toward liabilities that were already satisfied but had mysteriously reappeared on respondent’s records. Ultimately, the Service sent petitioner an $8,700 check.”
IRS was relentless in its confusion. Fagan was relentless in his patience. “Between 2008 and 2013 the Service sent petitioner bills for taxes, penalties, and interest (involving around $17,000 to $18,000) for the same tax periods which petitioner had paid off as part of his settlement and installment agreement. In each instance, petitioner convinced the Service that these claims had been resolved in the settlement and paid as part of the installment agreement.”
In all fairness to IRS, they are relying on computer hardware and software that dates back several generations of technology. Judge Gerber summarized the sordid history: “Although the parties had settled one collection due process case and entered into an installment agreement with which petitioner complied, the Service was not able to adjust its records to properly reflect the resolution; and it continued to issue notices and seize property in satisfaction of tax liabilities that had been settled and satisfied. The interaction and confusion began in 2006 and has continued through the instant collection due process case.”
At some point, however, we have to ask whether the problem lies with the computer, or with the humans who are paid to analyze and solve problems. Such beings apparently did not exist in the Appeals Office, or in Chief Counsel’s office. Fortunately, one was found in Tax Court. But how many taxpayers without a law degree and free time in retirement could win this case?
From the summary opinion: “Respondent’s position that this case involves an overpayment is incorrect. There were payments that were made in satisfaction of a series of outstanding tax liabilities. There were misapplications of payments that petitioner and respondent had agreed were to be applied against specific liabilities. Such payments are not ‘overpayments’ which are covered by section 6402 as they were payments that respondent agreed to apply against specific tax liabilities. One of those tax liabilities had been fully satisfied. In addition, respondent applied one of petitioner’s refunds to accounts that had been satisfied. These errors and misapplications totaled $2,900, an amount sufficient to satisfy the 2011 income tax liability respondent seeks to collect.
“Accordingly, the record supports petitioner’s position that respondent misapplied $2,900, an amount which exceeds the outstanding balance of the 2011 liability for which collection is being pursued. We agree with petitioner that his payments cover the amount due for 2011 and that it was an abuse of discretion for respondent to pursue collection.”
I have prepared a post on Mr. Fagan’s case which will probably run later this week. My post makes many of the same points made here. The IRS decision to go forward in this matter is a head scratcher and this is a case that puts it in the funny papers. I do not know if we see enough cases like this to make the funny papers a regular feature but I agree it is important to point out when the IRS has taken actions that deserve some form of public shaming (and to point out when they do something right.) Keith