This week had only three designated orders. The subjects include further Graev analysis, an issue again before Judge Buch where petitioners signed a stipulation but refuse to sign the decision, and a short order concerning odd behavior by petitioners.
Graev Issues Affect Rich and Famous Petitioners
Docket No. 17514-15, Hisham N. Ashkouri & Ann C. Draper v. C.I.R., Order available here.
Caleb Smith previously blogged on this case, noting the celebrity nature of the petitioners here. Without digging too deep into the nature of the case, I will say that it is another notice of deficiency Tax Case falling under Graev analysis concerning IRS supervisory approval for section 6662 penalties.
In this case, the IRS seeks to introduce evidence of supervisory approval into the record. The petitioners argue that Appeals amended the tax liability by offering to reduce the deficiencies by 50% of what was previously stated. They argue that offer amounts to a fundamental change and it supersedes the prior 30-day letter.
The Court’s analysis is that it is not a fundamental redetermination of the tax liabilities, but a simple offer reducing the proposed adjustment in half. The Court determination is that the evidence the IRS seeks to introduce concerning supervisory approval is not cumulative or impeaching, is material to the penalty issues, and has potential to change the Tax Court decision concerning the penalties by establishing IRS compliance (the evidence concerning one of the supervisors would not have been sufficient and would have been late but opening the record would include the second supervisor’s statement, which will bolster the record).
The Court’s order is to reopen the record and, because petitioners have no grounds for exclusion, the declarations by both supervisors with accompanying attachments will be received into evidence. Also, it is found as a fact that the penalties determined in the notice of deficiency were proposed, then approved by the immediate supervisor.
Takeaway: Being rich and famous may mean raising better arguments than low income taxpayers, but that doesn’t mean you will automatically win in a Graev/Chai ghoul case.
Déjà Vu – Judge Buch Set Aside Another Signed Stipulation?
Docket No. 5629-17, Thomas L. Kitts & Amanda M. Kitts v. C.I.R., Order and Decision available here.
In a bit of a repeat of my April posting on designated orders, Judge Buch is again in the position where petitioners have signed a stipulation with the IRS but do not want to sign the decision. Will Judge Buch come to the same decision here?
The parties were scheduled for a trial December 10, 2018, but signed and submitted a stipulation of settled issues. The case was not called and the Court gave the parties until February 8, 2019, to submit a decision based on the stipulation.
In December, the IRS mailed to the Kitts a proposed decision with accompanying computations. The Kitts did not sign the decision. In February, their accountant sent to the IRS a letter stating they did not agree with the decision because they felt they received misrepresented information in the stipulation mainly because they did not have income tax computations at that time.
After the IRS received the letter, the parties held a conference call with the Court. The IRS agreed to correct a computational error in the proposed decision. The IRS later filed a motion asking for entry of a decision under Rule 50 pursuant to the stipulation and in accordance with the corrected proposed decision. The Kitts filed a motion to be relieved of the stipulation with claims of IRS misrepresentation.
Within the analysis, the judge states the Court uses broad discretion to permit relief from a stipulation only when necessary to prevent manifest injustice. While damaging relief upon a false or untrue representation of a party is ground for relief from a stipulation, the Kitts did not provide basis to support their claim of misrepresentation. They may have misunderstood the tax effect of their stipulation but their unilateral mistake (if there is one) is not grounds to set aside the stipulation. The Court is unlikely to grant relief from a stipulation entered into through considerable negotiation. Here, the parties freely and fairly signed the stipulation after both parties were aware of what was at issue.
The Kitts contend the IRS did not follow their internal rules for Rule 155 computations or the Department of Justice Tax Division Settlement Reference Manual regarding timely supplying Rule 155 computations. The judge states these contentions are irrelevant and not binding on the IRS.
The parties had opportunity to negotiate or go to trial, choosing to stipulate to resolve all issues. The judge determines that manifest injustice will not result from enforcement of the stipulation and orders that the IRS motion for entry of decision is granted.
Takeaway: Again, it will be difficult to avoid signing a decision after signing a stipulation in Tax Court. The burden to prove manifest injustice will result by signing a decision is high so petitioners should expect to sign the decision after signing a stipulation.
Short Take
Docket No. 19951-18SL, William B. Recarde & Dorothy A. Recarde v. C.I.R., Order of Dismissal available here.
The petitioners filed their “Petitioners’ Withdrawal of Case.” Judge Carluzzo reads it as their request for the case to be dismissed, so he orders that their case is dismissed and that their motion to compel is moot.
Carl Smith reminded me that this would be a Collection Due Process (CDP) case as the Tax Court has held that a taxpayer may voluntarily dismiss a CDP or whistleblower award case at any time (so long as it is not prejudicial to the IRS), but not a deficiency or a transferee liability case.
Takeaway: I’m not sure if this is a case of being careful what you wish for or not. Since the petitioners filed to withdraw their case, that is what they got. Be sure that what you file with Tax Court is consistent with what you want.
About William Schmidt
“Takeaway: I’m not sure if this is a case of being careful what you wish for or not. Since the petitioners filed to withdraw their case, that is what they got. Be sure that what you file with Tax Court is consistent with what you want.”
Since this came after a motion to compel, I bet it isn’t what they wished for, I bet they had some other reason.
In a case where a subpoena was served on the IRS’s counsel and I wished for discovery, I ended up signing a settlement (in which the IRS conceded all penalties that were properly involved in that case). Remember a case where a defendant’s medications were presented in an attempt to obtain leniency in sentencing, where the defendant (former Tax Court judge) had brought the problems on herself? Maybe innocent people also get medical problems when abused by the IRS? I postponed heart surgery twice because of Tax Court calendar calls, and abandoned the discovery effort because I was too ill.
The Supreme Court in SEC v Chenery II stated that an agency must follow its own rules. Aren’t the Tax Court Rules permitting the IRS to fix a missing signature violating SEC v Chenery II by permitting an agency to fix a problem? Doesn’t the Supreme Court case trump Tax Court rules?
“The Supreme Court in SEC v Chenery II stated that an agency must follow its own rules.”
That would let petitioners benefit from the IRM. That sure would be nice. But if you want to make a court comply with a Supreme Court ruling when they don’t want to, you have to get cert.
While the Tax Court has chosen not to follow the APA in most circuits, this argument involves court rules. Wouldn’t the Tax Court be required to follow the Supreme Court mandate?