Designated Orders: The Nonresponsive Petitioner (10/29/18 to 11/2/18)

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This week’s post on designated orders is written by William Schmidt of the Kansas Legal Aid Society. Similar to the statistical post on designated order provided by Patrick Thomas a few weeks ago, William uses a slow week in designated orders to provide us with a reflective post on one of the root causes of trouble in Tax Court and with the tax system generally. Keith

The week of October 29 to November 2, 2018 had a total of three designated orders. To begin, the first order, here, is a short order regarding a joint filing of a stipulation of settled issues.

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Short Take: Docket No. 21940-15 L, James L. McCarthy v. C.I.R.

The second order, here, discusses ownership of real estate by a trust that IRS Appeals determined has been acting as the petitioner’s nominee. The petitioner has submitted both an offer in compromise and a partial payment installment agreement. Since Appeals determined the petitioner is connected with the trust, it becomes a factual issue regarding the real estate in question being an asset of the trust (affecting petitioner’s assets to determine his collection alternatives listed above). The IRS stance is that the property in question could be used to satisfy petitioner’s liability. The parties are to submit their memoranda regarding their arguments concerning the ownership of the property and petitioner’s ability to enjoy its benefits or treat it as his own during the ownership period by November 14.

The Nonresponsive Petitioner and Related Issues

Docket No. 18347-17 L, Kazuhiro Kono v. C.I.R., available here.

This case does not offer much for analysis. The petitioner did not submit requested documents to the IRS, did not respond to a second request, did not file a response to the IRS motion for summary judgment, and did not appear at the Tax Court docket. As a result, the Tax Court granted the IRS motion for summary judgment based on petitioner’s overall lack of responsiveness.

Since there is not much to focus on this week, I am going to take a detour and focus the rest of the blog post on an examination of the responsiveness of taxpayers during the Tax Court process. I am working on a presentation with some of the others who post here on designated orders so I have been doing some big picture thinking about Tax Court and designated orders.

  1. Types of Clients

In practice, I get to meet several types of clients. There are four categories I can think of who inherently have issues in dealing with IRS bureaucracy:

  • Low Income Taxpayers – The inability to afford higher education may be the beginning of barriers to understanding tax issues for some low income taxpayers. Another is the inability to take time to communicate with the IRS. Taxpayers often cannot take off work in order to have time to wait on the phone in order to deal with tax issues, especially if they are on a tight budget. The lack of funding for the IRS has increased wait times in order to talk with a customer service person on the phone, which leads to dissatisfaction and quitting attempts to deal with the IRS.
  • Disabled – There can be many categories here, whether physical or mental disabilities. If a taxpayer does not have the energy, ability or capacity to deal with tax issues, that person might be confused by the tax system or give up because it takes too much to handle.
  • Elderly – Again, this group may be declining in health or mental ability and lack the energy, ability or capacity to deal with tax issues.
  • English as a Second Language – I am using this category to cover all those who have difficulty with English, whether they are immigrants to the United States or not. Those who do not speak the language or understand American culture have that additional barrier to add to issues with understanding tax terminology or dealing with the IRS.

One client of mine has a case regarding financial disability (see past Procedurally Taxing postings here and here). She had paranoia and a nervous breakdown that prevented her from signing her 2012 tax refund before the 3-year deadline expired. I have had to be extra patient to work with her to fill out paperwork and get medical support regarding her disability. I am trying to prove that her medical issue should allow her an exception to the 3-year deadline.

Another client is a Spanish speaker who was audited for claiming her grandchildren as dependents and including other child-related benefits. After providing rounds of documents to the IRS, she was tired and got to the point where she did not want to gather more documents for me to provide to the IRS. I am glad to say that we have been successful in convincing the IRS to allow her to claim those dependents, but they wanted me to speak with my client about substantiating her future claims correctly.

  1. Nonresponsiveness

In surveying several of the past designated order postings, I looked for patterns of nonresponsive petitioners. Some of the broadest patterns are the lack of providing documents and ignorance of procedures.

Often, the IRS requests that a client fill out a Form 433-A or submit unfiled tax returns. For disorganized clients, that is an uphill battle, discussed more in the next section. Additionally, filing tax returns (especially in the off-season) may be a cost that taxpayers are unable to overcome.

For the unrepresented taxpayers, it does seem like they have a do-it-yourself mentality. Unfortunately, that means their courage leads them into areas for which they are not prepared. These taxpayers venture into areas of court or tax procedure they are ignorant of and it often leads to their detriment when the Tax Court finally grants the IRS motion for summary judgment.

To begin, there are some basics of court procedure that non-attorneys should realize they need to follow. They should show up in court for all hearings on their cases. If their case is scheduled for a calendar call, trial or any other special hearing, pro se petitioners should realize they need to show up. Participation in any legal hearing does not guarantee success, but it generally improves the judge’s opinion in the favor of those who appear unless the person is obnoxious.

Something else that should be obvious to unrepresented taxpayers is that they need to respond to court filings, especially the judge’s orders telling them to do so. By not responding to a judge’s orders, unrepresented taxpayers especially hurt their own cases.   It should be obvious to a taxpayer in Tax Court that doing something is often better than doing nothing.

One key piece a taxpayer should also realize is just what arguments are at issue. Collection Due Process (CDP) cases in Tax Court are one of the areas where taxpayers have problems. A CDP case in Tax Court concerns how the IRS treated the taxpayer. Were proper procedures followed? Did the taxpayer get his or her due process in treatment of the tax issue? A CDP hearing is not the place for the taxpayer to argue the merits of the tax at issue. Most likely, that ship has already boarded, sailed away, and docked at its port destination. Even though that is the case, there are still Tax Court petitioners trying to argue the merits of the tax at issue when they should be making arguments concerning due process.

This scratches the surface regarding complicated areas of court procedure. When it comes to hearsay or other trial arguments, taxpayers should be thinking about finding representation instead of making arguments without assistance.

The other area where taxpayers need to respond is regarding tax procedure. Ignorance of taxes will not serve people well in Tax Court. In looking at claims from child-related tax benefits to rental expenses, the common denominator is that the IRS requires substantiation for those claims.

I find it becomes necessary to be the middleman between my clients and IRS departments such as IRS Appeals or counsel. While my clients may have documentation regarding claims on their tax returns, I have found I need to translate communications from the IRS to the client and vice versa. It has also been necessary to organize documents so the IRS can review what the client has set aside. The IRS certainly does not like it when a taxpayer dumps unorganized documents in their lap as proof against the IRS audit. I went through the Tax Court process assisting a client who had boxes of documents. A current client has a suitcase of tax paperwork that needs to be organized for the IRS.

I think it is bizarre that taxpayers try to tackle areas of court and tax procedure when they are ignorant in those areas. I can understand that they want to save money, but they often ignore IRS notices about the LITC program. Several of them qualify for free assistance, but they choose to take on the IRS without any assistance at all. Why they do this makes no sense to me – they should at least call up the nearest LITC office to see what they have to say.

  1. Potential Solutions

A colleague (SueZanne Bishop) and I presented on “Gaining Independence Through Organized Financial Records” at the 2017 Kansas Conference on Poverty. While we did not have statistical data, we did have experiential learning to provide regarding the difficulties in working with clients to gather their financial data in areas of tax, family law, bankruptcy, estate planning and other areas of law. We spoke about the issues with handing an extensive form to clients to fill out regarding their assets, income, expenses or other financial data (such as IRS Form 433-A or forms used to expedite court filing). I also brought up how there may be additional steps involved in filling out a form, such as how the insolvency worksheet in IRS Publication 4681 needs financial information based on the date of a debt’s cancellation and not current financial information.

Some solutions we provided were giving clients more manageable chunks to a client (perhaps one page at a time) or regular meetings for each part of the form. I often talk through Form 433-F with clients rather than have them fill it out alone when I need that information in order to help them qualify based on their financial hardships for Currently Not Collectible status.

The theory behind our presentation was that helping clients to get organized now may give them assistance with greater problems in the future. Knowledge and the ability to budget would add to their skill sets. Organized data would reduce attentional strain (not dividing their focus between their finances and their children, for example). Adding this accomplishment might empower them to deal with the next problem and the next.

Often I think of how clients at legal aid organizations, LITCs, and other assistance programs would have difficulty dealing with their issues without the help we provide.

I do not know if the petitioner above, Mr. Kono, had any of the issues I mentioned. I wanted to provide alternative theories (not excuses) for why petitioners axre not as responsive as the IRS or the Tax Court would prefer. I know the IRS and the Tax Court try to educate taxpayers about the existence of the LITC program and I am dismayed why more do not ask for help. I also salute all pro bono volunteers who assist before and during Tax Court calendar calls.

Takeaway: I do not mean for this to be a blatant plug for the LITC and pro bono programs, but there is something to be said for those of us who act as the intermediaries between taxpayers and the IRS. The lack of IRS funding that in turn prevents quality customer service is but one of the barriers that taxpayers deal with so I wanted to provide another side of the story for the nonresponsive petitioners in these Tax Court cases. Potentially there is more to a petitioner’s story than laziness on why they did not do more in these cases.

 

 

William Schmidt About William Schmidt

William Schmidt joined Kansas Legal Services in 2016 to manage cases for the Kansas Low Income Taxpayer Clinic and became Clinic Director January 2017. Previously, he worked on pro bono tax cases for the Kansas City Tax Clinic, the Legal Aid of Western Missouri Low Income Taxpayer Clinic and the Kansas Low Income Taxpayer Clinic. He records and edits a tax podcast called Tax Justice Warriors.

Comments

  1. In defense of Mr. Kono, it doesn’t help when the Tax Court screws up. To my knowledge, its judges are not low-income, disabled, elderly or deficient in English skills. But if you check the docket of the Kono case, you find that:

    1) He was ordered on January 25, 2018 to file a response to the IRS motion for summary judgment by February 15, 2018. He did not respond. Those three weeks are about the worst time of the year to find professional tax help.

    2) But then he was informed on June 26, 2018 that his case was set for a hearing October 1, 2018 on the IRS motion for summary judgment.

    3) But then he was informed on August 13, 2018 that his case was set for a trial on January 7, 2019.

    4) Because he did not show up in Los Angeles on October 1, 2018, the IRS motion for summary judgment was granted by Special Trial Judge Guy.

    5) Then on October 30, 2018, Chief Judge Foley signed an order vacating the January 7, 2019 trial date, which had been set “due to clerical error.”

    There are seven individuals with the name “Kazuhiro Kono” who have Linked-In profiles, but four of them are in Japan. Two of them are in the “Greater Los Angeles Area,” and identified as CEO’s of their company. Since the filing fee was waived for this Kazuhiro Kono, perhaps it is unlikely that either of them match. Possibly he is the former minor league baseball outfielder, who played for several American and Japanese teams in 2004 and 2005. (The case involves 2009 taxes.) I can imagine it may be difficult for a professional athlete to be in one place for an extended time.

  2. Norman Diamond says

    “English as a Second Language – I am using this category to cover all those who have difficulty with English, whether they are immigrants to the United States or not.”
    […]
    “For the unrepresented taxpayers, it does seem like they have a do-it-yourself mentality.”

    Sorry to repeat a comment made to someone else a few days ago, but the issue arises repeatedly and fails repeatedly to be solved.

    There are people who don’t speak English and haven’t “immigrated” to the US, but suffer the “benefit” of Cook v. Tait because either they were born while their parents were in the US (for instance going to grad school but lots of other possibilities) or haven’t even entered the US but had parent(s) who came from the US. They need help too, but they don’t get help. They belong in a category like your fourth one, but they don’t get into it because you don’t get to meet them. Lots of them do not have a “doit-yourself mentality” but get turned down by LITCs and can’t afford (and/or get turned down by) for-profit lawyers.

    “Often, the IRS requests that a client fill out a Form 433-A or submit unfiled tax returns.”

    Form 433-A when it hasn’t even been substantiated that the person owes money? Unfiled tax returns when the person doesn’t know that the IRS unfiled some returns after having previously filed them? I know of at least one case where a petitioner couldn’t guess how to respond.

    “A CDP case in Tax Court concerns how the IRS treated the taxpayer. Were proper procedures followed? Did the taxpayer get his or her due process in treatment of the tax issue? A CDP hearing is not the place for the taxpayer to argue the merits of the tax at issue.”

    When the IRS asserts that it has not issued a Notice of Deficiency, yes a CDP hearing is the place to argue merits of the underlying liability. When the Settlement Officer refuses to allow discussion of the underlying liability, the taxpayer can tell the court that proper procedures were not followed, but the taxpayer cannot make the court care.

    “I do not know if the petitioner above, Mr. Kono, had any of the issues I mentioned.”

    I thought I’d take a look to see if he lives in the US, but it seems that information isn’t available online. But look what is available:

    ‘REDACTED PETITION FILED by Petr. Kazuhiro Kono: FEE WAIVED’

    Did the court first waive the fee and then change their minds? Or did the petitioner submit required documentation and get a retroactive waiver? There is nothing to indicate that the petitioner eventually paid the fee.

    By the way, Canada’s income tax department sent an auditor to my apartment when I lived there and Japan’s tax agency sent auditors to my employer while I lived here, both saw that my declarations were correct, and I never heard anything further. Imagine if the IRS would have audited me; problems could have been solved in weeks instead of decades.

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