Guest blogger Samantha Galvin from University of Denver brings us up to date on the designated orders this week. (We are a bit behind on publishing these but will catch up soon.) I had the chance to see Samantha recently at the Tax Court Judicial Conference and to hear comments from many readers of this feature. As always in 2018 there are orders on issues concerning the Graev case. Michael Jackson’s estate continues to provide fodder as well. Perhaps the most interesting case is the first one she discusses. The issue of obtaining a refund in a CDP case is one we thought was settled with the answer being that it was not possible to obtain a refund in that forum. Perhaps the Tax Court has decided to revisit the area. See here and here for prior discussion of that issue. There is also a lengthy discussion of the issue in the Collection Due Process chapter of Saltzman and Book. Keith
The Tax Court designated seven orders the week of March 12, 2018. Three are discussed below, the orders not discussed are: 1) an order ruling on a motion for continuance and motion to dismiss involving the Court’s discretion to grant a continuance shortly before trial (here); 2) a ruling on evidentiary matters in the Michael Jackson Estate case (here); 3) an order involving partnership issues where petitioner filed a motion in limine and motion to dismiss for lack of jurisdiction (here); and 4) an order reopening the trial record in a case involving a Graev III analysis (here).
A Novel Jurisdictional Question – Can the Court Order Refund in a CDP Case?
Docket No. 20317-13, Brian H. McClane v. C.I.R. (Order here)
In this designated order the Tax Court directs the pro se petitioner to contact LITCs in the Baltimore area because it confronts a novel issue, which is whether the Court has jurisdiction to determine and order the credit or refund of an overpayment in a CDP case. The case is before the Court to review a determination sustaining an NFTL for tax years 2006 and 2008.
read more...It is important to note that the parties dispute whether respondent properly mailed a notice of deficiency (“NOD”) for the years at issue, but both parties agree that the petitioner did not receive a notice of deficiency.
During and after trial, respondent accepted petitioner’s substantiation of deductions for 2008 which results in petitioner’s tax liability being less than the amount reported on his return and eliminates the need for the Court to sustain the NFTL for that year. As a result, the Court asks if the parties object to a decision upholding respondent’s determination for 2006 only, and petitioner objects because he believes he is due a refund for 2008.
Petitioner did not claim a refund in his petition, but that does not preclude him from pursuing a refund claim now because Rule 41(b)(1) requires that any issues tried by express or implied consent are treated as if they were raised in the initial pleadings. The Court views respondent’s concessions as implied consent to the issue of whether petitioner is entitled to a refund. The fact that the issue is raised, however, does not establish the Court’s jurisdiction over the issue. This bring us to the focus of the designated order – does the Court have jurisdiction to order a refund here?
The Court requests that the parties submit supplemental briefs on this issue before the Court resolves it but provides guidance in the form of observations and questions.
Sections 6330(d)(1) and 6512(b)(1) are relevant to the issue of the Court’s jurisdiction to determine and order the refund or credit of an overpayment in a CDP case. Section 6330(d)(1) is the principal, and perhaps the only, basis for jurisdiction and allows the Court to review a determination made by Appeals. The authority is generally regarded as limited to matters within scope of Appeals’ determination. This permits the Court to decline to uphold the determination to sustain the NFTL for 2008, but can they go further and order a refund? Did Appeals have the authority to order a refund and does that matter?
The Court asks petitioner to advise the Court on whether he views the Court’s ability to order a refund within the jurisdiction of 6330(d)(1) and what analysis or authorities support that view. The Court similarly asks respondent to advise the Court on whether the Court’s jurisdiction is limited under section 6330(d)(1) and whether Appeals has the authority to order a refund.
Section 6512(b)(1) gives the Court jurisdiction to determine and order the refund or credit of an overpayment in deficiency cases, but this is not a deficiency case.
Section 6512(b)(3) limits the Court’s ability to order a credit or refund to only that portion of tax paid after the mailing of a NOD or the amount which a timely claim for refund was pending (or could have been filed) on the date of mailing of the NOD. Is this limitation a further indication that overpayment jurisdiction by section 6512(b)(1) is ancillary to deficiency jurisdiction under section 6214(a)?
Respondent’ efforts to collect a deficiency that petitioner did not previously have an opportunity to contest puts into play the amount of his tax liability for that year under section 6330(c)(2)(B), but it is not clear that respondent’s efforts had any effect on petitioner’s ability to pursue a refund claim in other ways (by filing an amended return or responding to the NOD). The Court is not aware of any reason why petitioner could not have pursued his refund claim independently of respondent’s collection action and the section 6330 petition.
Petitioner filed the return at issue in 2009 but made payments from 2009 and 2012 meaning that the latest he could have claimed a refund for some of the amount paid was 2014, so the Court wonders to what extent petitioner’s claim is timely. Did respondent’s issuance of NFTL or any other event that occurred as part of the CDP case suspend the section 6511(a) period of limitations? Or any action on part of petitioner? If respondent’s issuance of the NFTL did not affect petitioner’s ability to pursue a refund claim that has since become time-barred, then petitioner has no ground to complain about the Court’s inability to entertain a belated refund claim as part of the present case.
Supplemental briefs on the issue are due on or before April 30, 2018.
Simple, Concise and Direct
Docket No. 14619-10, 14687-10, 7527-12, 9921-12, 9922-12, 9977-12, 30196-14, 31483-15, Ernest S. Ryder & Associates, Inc., APLC, et al. v. C.I.R. (Order here)
This designated order is somewhat unique because it contains a lesson for Respondent.
These consolidated docket cases had been tried in two special sessions in 2016. During trial, Respondent made an oral motion to conform the pleadings to proof (which means that the Court treats the issues tried by the parties’ express or implied consent as if they were raised in the initial pleadings) pursuant to Rule 41(b) and the Court directs respondent to put his motion in writing so it can serve as an amended pleading. Rule 41(d) requires that amended pleadings to relate back to the original pleading.
The motion filed by respondent has two attachments (issues raised in the NOD and issues raised at trial) which contain over 100 different numbered items which are duplicative to some extent. Despite the voluminous nature of the attachments, respondent also states that the lists are not exhaustive. The Court finds deciphering the issues raised by respondent to be confusing and since the Court is confused, it understands that the petitioner may also be confused.
Petitioner argues that respondent’s evolving theories prejudice him by making it difficult to know which theories warrant a response. Rule 31(b) requires that pleadings be simple, concise and direct. The Court has discretion to allow amended pleadings but denies respondent’s motion because it violates Rule 31. The Court directs respondent to make his motion describe the issues more clearly if he plans to resubmit it.
Three Attorneys and Levy Still Sustained
Docket No. 26364-16, Patricia Guzik v. C.I.R. (Order here)
The petitioner is in Tax Court on a determination to sustain a levy on income tax and section 6672 trust fund recovery penalties. Respondent moves for summary judgment and argues that the settlement officer did not abuse her discretion since petitioner’s offer in compromise could not be processed due to an open examination and petitioner could not establish an installment agreement because she failed to propose a specific monthly payment amount. The Court grants respondent’s motion.
Petitioner is very sympathetic. She was diagnosed with Multiple Sclerosis, pregnant and on bed rest when she first began working with Appeals in her collection due process hearing. Her attorney, the first of three over 14 months, requests an extension to submit a collection statement and an offer in compromise, which the settlement officer grants. Because petitioner’s 2011 return was being audited, the settlement officer informed the attorney that an offer would not be processable unless the audit was closed by the time the offer was considered, but an installment agreement may be an option.
The first attorney faxes over a collection information statement and requests another extension to submit an offer in compromise which the settlement officer grants, but this deadline is ultimately missed.
Petitioner hires new representation in the meantime and the second attorney requests an extension which, again, the settlement office grants. This time the offer is submitted, but it is not processable due to the still open audit. While the offer is being considered, petitioner hires new representation for the third time. The newest attorney informs the settlement officer that because the offer is not processable, petitioner wants to propose an installment agreement. Petitioner’s counsel asks if the settlement officer has an amount in mind and the settlement officer states that proposing an amount is not her role, it is petitioner’s. The settlement officer also states that petitioner’s assets may need to be liquidated before the installment agreement can be considered. At this point, petitioner has not paid her 2015 liability and has not made estimated tax payments for 2016.
Petitioner pays nearly all her trust fund recovery penalties, which she argues is a material change in circumstances, and because of that change the Court should remand her case back to Appeals for review.
The Court can remand cases back to Appeals but typically does so if a taxpayer’s ability to repay has diminished and does not necessarily do so when a taxpayer’s ability to pay has improved – so the Court chooses not to remand the case.
Petitioner’s health issues are very unfortunate, but she had three attorneys in 14 months all of whom requested extensions which the settlement officer allowed. Even with the additional time, petitioner never submits an installment agreement proposal, so the Court sustains the levy finding that the settlement office did not abuse her discretion.
About Samantha Galvin
It is curious that Judge Halpern’s order in McLane did not mention Greene-Thapedi v. Commissioner, 126 T.C. 1 (2006), in which a divided Tax Court held that it had no refund jurisdiction in a CDP case. Judge Halpern, in his order, said he thought McLane involved a novel issue about refund jurisdiction in CDP, but unless someone can distinguish Greene-Thapedi, McLane does not present a novel issue.
Maybe Judge Halpern sees a distinction that escapes me now? In Greene-Thapedi, the taxpayer had received a notice of deficiency and petitioned the Tax Court. The Tax Court entered a stipulated decision finding a deficiency. The taxpayer paid the deficiency and part of the interest and penalty, but then had a CDP case in which the taxpayer argued that some of the interest and late-payment penalties were overcharged (because the IRS records were incorrect that it had issued a notice and demand prior to issuing the NFTL). After the Appeals Office denied the miscomputation of interest and penalties, the taxpayer filed a CDP case in the Tax Court. The CDP hearing could properly consider a dispute about interest and late-payment penalties, since their amounts were not something that was established in a notice of deficiency, and the taxpayer had no other previous opportunity to contest them at Appeals. While the Tax Court CDP case was pending, the IRS took an overpayment from a later year and used it as a credit to completely pay off the disputed balance of interest and penalties. The taxpayer then sought a refund in the CDP case, and the majority held that it lacked jurisdiction to determine one in a CDP case.
There was a (to me) confusing footnote to the majority opinion that seemed to perhaps carve out instances where the CDP hearing could involve a challenge to the underlying tax in a deficiency case (which would be McLane’s situation), though the footnote is far from clear that it is addressing deficiency cases. The footnote reads:
19 We do not mean to suggest that this Court is foreclosed
from considering whether the taxpayer has paid more than was
owed, where such a determination is necessary for a correct and
complete determination of whether the proposed collection action
should proceed. Conceivably, there could be a collection action
review proceeding where (unlike the instant case) the proposed
collection action is not moot and where pursuant to sec.
6330(c)(2)(B), the taxpayer is entitled to challenge “the
existence or amount of the underlying tax liability”. In such a
case, the validity of the proposed collection action might depend
upon whether the taxpayer has any unpaid balance, which might
implicate the question of whether the taxpayer has paid more than
was owed.
Perhaps Judge Halpern viewed the issue presented in McLane as one carved out in the footnote in Greene-Thapedi?
I know a number of people (including Frank Agostino) who think Greene-Thapedi is wrong. And four concurring judges in the Green-Thapedi case thought it a perhaps bad result that a taxpayer might not be able to seek a refund in a Tax Court CDP case, Judge Colvin writing:
Typically in these situations, a taxpayer’s only remedy may
be to fully pay the tax, file a refund claim, and if
unsuccessful, institute a tax refund suit in Federal District
Court or the Court of Federal Claims. As a result, taxpayer
protections provided in sections 6320 and 6330, that is, the
right to administrative and judicial review of the Commissioner’s
collection actions, can quickly evaporate simply because the
taxpayer overpaid his or her taxes for another year.
The circumstances present here may recur in future cases.
The combination of the Commissioner’s authority to offset an
overpayment and the mootness doctrine may cause taxpayer
frustration and waste judicial resources. The dismissal of a
proceeding brought in this Court under section 6320 or 6330 due
to the offset of an overpayment may convince taxpayers that their
efforts during the administrative and judicial process were
wasted. Taxpayers may draw little solace from the fact that they
can reinstate their challenge to the Commissioner’s collection
action by filing a refund suit in another court.
As far as I know, no one ever tested Greene-Thapedi’s holding in a court of appeals. Judge Vasquez wrote a powerful dissent in that case. Perhaps, if Jude Halpern cannot distinguish Greene-Thapedi, then it is time for someone to take the McLane case to the courts of appeal. McLane lives in the Fourth Circuit.
‘It is important to note that the parties dispute whether respondent properly mailed a notice of deficiency (“NOD”) for the years at issue, but both parties agree that the petitioner did not receive a notice of deficiency.’
That would be relevant to the issue of whether the taxpayer can contest the alleged underlying deficiency during the CDP hearing and Tax Court case, but it doesn’t seem to give Tax Court jurisdiction to order a refund. Greene-Thapedi’s case still seems to wrap up this injustice pretty tightly.
Even if the taxpayer can file an ordinary petition and move to dismiss it for lack of jurisdiction because the IRS can’t produce a Notice of Deficiency, that would only prevent the IRS from proceeding with collections during the 90 day period until the court order becomes final. It still wouldn’t give Tax Court jurisdiction to order a refund. If the IRS waits more than 90 days before making a partial collection, Tax Court no longer has jurisdiction and other courts don’t have jurisdiction because of the Flora rule.
‘The Court is not aware of any reason why petitioner could not have pursued his refund claim independently of respondent’s collection action and the section 6330 petition.’
Right. Even though the petitioner can’t actually get a refund by other methods of pursuing it, nothing would stop him from trying other methods of pursuing it. Low Income Tax Clincs don’t give this kind of assistance, and lawyers’ fees would cost a large multiple of the amount of refund owing, and expenses as pro se look affordable at first but they also build up to a large multiple of the amount of refund owing, but sure there’s no reason why the petitioner can’t engage in the pursuit.
The situation would be the same even if the petitioner’s original tax return fully and timely claimed the amount of refund owing.
“As far as I know, no one ever tested Greene-Thapedi’s holding in a court of appeals.”
I think it would be useless because the statute is clear. I think we’d be better off asking Congress to amend the new TBOR statute to give Tax Court jurisdiction.
P.S. Wasn’t Greene-Thapedi a judge? So if she thought she had a chance of gaining anything on appeal, she knew how to try?
No one looks good in the McLane case. Why are limited IRS and Tax Court resources being directed in 2018 to a 2008 refund? Perhaps justice requires it, but justice delayed is justice denied. I looked at the docket history and found:
September 2013: Case filed.
January 2014: IRS motion to remand to Appeals.
March 2014: IRS motion to remand is denied (Judge Panuthos). “In the motion to remand, respondent acknowledges that the record does not establish that respondent verified that petitioner received a notice of deficiency for 2008. Respondent asks that this case be remanded to the Appeals Office to allow the Settlement officer to consider petitioner’s claim that he did not receive a notice of deficiency for 2008 and, if necessary, to locate the applicable document(s). . . .
“One of the issues to be resolved in this case is whether petitioner signed a waiver of restrictions on assessment ofthe 2008 deficiency and, if not, whether a notice of deficiency, which the master file seems to indicate was not sent to petitioner, was in fact sent to petitioner. If petitioner did not sign a waiver of restrictions on assessment of the deficiency and a notice of deficiency was not sent to petitioner then the assessment ofthe 2008 income tax deficiency would appear to be improper. . . .
“The notice of determination states that petitioner told the Settlement officer that he was ‘instructed by non-profit organization not to participate with the audit, so that the statute would not be extended’ and that he ‘did receive a green letter but * * * did not sign it.’ “
September 2014: Trial set for February 2015.
December 2014: IRS motion for summary judgment.
January 2015: IRS files another motion to remand.
January 2015: Motion for summary judgment denied; motion to remand to Appeals is granted; trial is stricken from calendar. (Judge Ruwe).
March 2015, June 2015, September 2015, January 2016, February 2016: IRS files status reports.
April 2016: Trial set for September 2016.
September 2016: Trial before Judge Halpern.
December 2016: Simultaneous opening briefs filed by both parties.
February 2017: Simultaneous answering briefs filed by both parties.
March 2018: Judge Halpern’s order requests supplemental briefing, and suggests petitioner seek help from a Low Income Taxpayer Clinic.
“No one looks good in the McLane case. Why are limited IRS and Tax Court resources being directed in 2018 to a 2008 refund? Perhaps justice requires it, but justice delayed is justice denied.”
Maybe the IRS should be asking itself that question, since it appears the IRS made an illegal assessment. Justice delayed is justice denied, but that doesn’t make it right to continue denying justice. Is there any indication of what kind of non profit organization gave advice to McLane? Does McLane live in a state that has a Low Income Tax Clinic?