This week’s post on designated orders was written by William Schmidt the LITC Director for Kansas Legal Services.
Before I turn you over to this week’s orders, for the second day in a row I want to pass out additional information about the prior day’s post. As with the additional information yesterday, an alert reader found pertinent information that will add to your understanding of the case. As we were filing the blog post yesterday, the debtor’s attorney was filing a joint stipulation of dismissal of the Pendergraft 505(a) litigation. If you remember the case, the debtor sought to litigate her status as an innocent spouse in bankruptcy court. The IRS objected and the bankruptcy court essentially said that it could hear the case but first she needed to make an administrative request to the IRS asking that it grant her innocent spouse status. She did what the court requested, almost always a good idea, and the IRS has given her a preliminary indication that it intends to deny her request. I believe her attorney is concerned that if he passes on the chance to litigate the innocent spouse issue in Tax Court, the IRS may appeal the decision of the bankruptcy judge and he could lose the opportunity in both venues. So, he is taking the safe route but also a route that will keep us from learning how higher courts would view this jurisdictional issue. Keith
There were 5 designated orders this week and they made up a mixed bag. The group includes a woman trying to convince the Court she was not part of a partnership despite prior history of stating otherwise, a man whose mail history will decide his tax liability, assistance for a petitioner regarding discovery, and summary judgments in Collection Due Process (“CDP”) cases.
Is She a Partner or Not?
Docket # 20872-07 & 6268-08, Derringer Trading, LLC, Jetstream Limited, Tax Matters Partner, et al, v. C.I.R. (Order Here)
For a Chicago trial set this month, the subject matter is a partnership-level proceeding under the TEFRA unified audit and litigation procedures. The partnership and the years in question is Derringer Trading, LLC, for 2003 and 2004. Leila Verde, LLC, was a partner of Derringer during those years. The parties disagreed whether Susan Hartigan was a member of Leila Verde. Michael Hartigan (Susan’s estranged husband) represented her as the ultimate owner of Leila Verde, the IRS position was that she was the 99% owner of Lelia Verde during 2003 and 2004 while Mrs. Hartigan filed a memo supporting her position that she was not a partner of Leila Verde at all. The Court held an evidentiary hearing on Mrs. Hartigan’s status.
Following a recounting of the evidence regarding the financial history of the Hartigans, the Court looked at three doctrines and concluded that Mrs. Hartigan is a partner of Leila Verde. Under the duty of consistency, Mrs. Hartigan previously asserted she was a partner of Leila Verde in prior courts, a joint tax return and in a bankruptcy case. Using analysis from the tax benefit rule, changing her status would provide a windfall to Mrs. Hartigan, which the rule was designed to prevent. Under judicial estoppel, Mrs. Hartigan took the position in prior courts that she was a partner of Leila Verde in an affidavit and other assertions, which she would now be estopped from asserting an opposite position against her prior judicial benefit. Her statute of frauds argument that the Leila Verde Purchase Agreement was invalid was misplaced for the TEFRA proceeding.
The Court notes that Mrs. Hartigan’s allegations of Mr. Hartigan forcing her to make the Leila Verde purchase through “deception, abuse, manipulation, exploitation and domination” would be better suited for an innocent spouse partner-level proceeding after the TEFRA proceeding.
Takeaway: Be consistent in your court testimony!
What Is His Last Known Address?
Docket # 22293-16, Nathanael L. Kenan v. C.I.R. (Order Here)
Mr. Kenan filed his 2011 tax return from his address on Ivanhoe Lane in Southfield, Michigan. Mr. Kenan alleges that he moved to a new address, Franklin Hills Drive, in Southfield prior to February 2013 and notified the U.S. Postal Service regarding his change of address. The IRS mailed a statutory notice of deficiency (“SNOD”) to the original address on February 19, 2013. Mr. Kenan filed his 2012 tax return from the second address and does not allege he gave the IRS a change of address between filing his tax returns.
Since Mr. Kenan did not file a Tax Court petition to respond to the SNOD, the IRS garnished his wages, levied his bank account, and applied his 2012 refund to his 2011 liability. The activity prompted him to contact the National Taxpayer Advocate, who Mr. Kenan alleges advised him to file a Tax Court petition. The petition states he did not receive the SNOD, having moved with no SNOD being forwarded to the new address so he argues no SNOD was ever mailed at all.
Should the SNOD have been mailed correctly, the Tax Court would dismiss Mr. Kenan’s petition for lack of jurisdiction for timeliness. If the SNOD was not correctly mailed, the dismissal would be based on an invalid tax assessment. The Court denied the IRS motion to dismiss for lack of jurisdiction in order to proceed to trial, where Mr. Kenan has the burden of proof regarding his timeline of the facts.
Takeaway: The IRS is required to update their addresses based on U.S. Postal Service Change of Address notifications. The address the IRS uses to mail their notifications is influential to determine jurisdiction for Tax Court.
Odds and Ends
Docket # 30295-15, Joseph H. Hunt v. C.I.R. (Order Here)
- Judge Cohen provides some relief regarding discovery for Mr. Hunt: “It appears to the Court that the interrogatories, with multiple pages of convoluted instructions and definitions served on an unrepresented taxpayer, are excessive under Rule 71(a) and should be limited under Rule 70(c), Tax Court Rules of Practice and Procedure.”
Docket # 21360-16L, Mushfaquzzaman Khan & Bushra Khan v. C.I.R. (Order & Decision Here)
- Petitioners failed to respond to an IRS motion for summary judgment regarding a lien collecting on a 2014 tax liability and the Court granted the IRS motion. Takeaway: The Tax Court is not authorized to review a taxpayer’s underlying liability when that issue is raised for the first time on appeal of a notice of determination.
Docket # 13479-15L, Michael Horwitz & Judith A. Horwitz v. C.I.R. (Order & Decision Here)
- In another CDP hearing, the petitioners did respond to the IRS motion for summary judgment, but the motion was still granted in favor of the IRS. Petitioners previously did not file requested tax returns or the Form 433-A financial statement and did not receive an installment agreement. Takeaway: It is necessary to respond to IRS requests in a timely fashion. Failure to provide the 433-A means no installment agreement with the IRS.
About William Schmidt
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