In Part One of this week’s designated orders, I discussed four orders where the petitioners either did too little or were too late. In the following case, the petitioners did way too much so the final designated order of the week merits an examination of its own.
Too Much
Docket No. 20102-17, Victor Maurice Brown & Kimberly Denise Brown v. C.I.R., available here.
There is a lot to unpack in this case where the petitioners, the Browns, have been overzealous in their litigation.
read more...• Tax Years 2014 and 2015 Notices
The IRS issued a notice of deficiency to the Browns for tax year 2014. The Browns did not file a petition with the Tax Court within the following 90-day time period. The IRS next issued a notice of intent to levy to the Browns for the 2014 tax year. The Browns did not file an appeal with the IRS within the 30-day time period for a Collection Due Process (CDP) case. The IRS later issued to the Browns a notice of intent to seize property for tax year 2014. This is a notice that does not support jurisdiction for a CDP case in Tax Court. Finally, the IRS issued to the Browns a notice of deficiency for tax year 2015 of $3,728, resulting from alleged unreported income from the sales of securities.
• The Browns’ Petition
The Browns filed their petition by attaching the valid 2015 notice of deficiency, plus the invalid 2014 notice of intent to levy and notice of intent to seize property. The petition stated “Deficiency-2015; Determination-2014.”
But, wait, there’s more!
The Browns’ petition describes a dispute Ms. Brown had with her former employer and alleges errors the employer made in reporting Ms. Brown’s 2014 compensation. Within the petition, there is a prayer for relief, which asks for: punitive damages for emotional distress (likely from the employer, filing false documents with the IRS), punitive damages for emotional distress (again likely from the employer as ‘redress for undetectable torts’), compensatory damages from the employer, that the Court grant the Browns a withdrawal of the 2014 tax year lien, “an increase in the recovery limit due to the unauthorized collection activities in connection with the collection of Kimberly Brown’s federal tax by way of unauthorized W-4 Withholding changes,” filing fees for amended tax returns for tax year 2014 and tax year 2015, a jury trial, all other relief the court deems just and proper, and “temporary, preliminary and permanent injunctive relief prohibiting further malicious and deceitful conduct.” The Browns did not later file an amended petition, nor any motion for leave to amend their petition.
• Dismissal of 2014
The IRS filed a motion to dismiss tax year 2014 from the case and the Court issued an order February 28, 2018, holding that the Browns’ petition was not timely filed regarding the 2014 notice of deficiency and that no notice of determination conferring jurisdiction had been sent to petitioners for 2014. The IRS motion was granted regarding dismissal of tax year 2014. References to that year were deemed stricken from the record, with a reminder that tax year 2015 was still pending before the Court.
• The Browns’ Subpoena
The Court issued notice that the case would be tried in Atlanta, Georgia, at the calendar beginning April 29, 2019. The Browns used Tax Court Form 14 to fill out a subpoena duces tecum and sent that to IRS counsel. The subpoena asks for various documents related to tax years 2014 and 2015. The subpoena does not list the production date as the trial date of April 29, but rather lists March 15. The place of production is not the courtroom, but the office of IRS counsel. A letter attached by the Browns indicates they did not include the fees and mileage required by Tax Court Rule 148.
• The IRS Motion for Entry of Decision
The IRS filed a motion for entry of decision in favor of the Browns for tax year 2015. The decision would be that there is no deficiency in income tax from and no refund due to the Browns for the 2015 tax year. The motion stated that the IRS Appeals Office agreed to concede all issues asserted on the 2015 notice of deficiency. However, the Browns refused to accept the concession, and objected to the granting of the motion. The Court ordered that the Browns were to state their objections with a succinct statement of their preferred decision and a succinct description of the issues no later than March 15, 2019.
The Court received the Browns’ response on March 18, 2019. They argue that the IRS motion attempts to circumvent the proper judicial review of the matters at issue, calling them “new matters” with contentions (1) the issuance of the notice of deficiency was the IRS proceeding in bad faith against the petitioners, (2) “the Court’s review of the evidence relative to tax year 2014, will demonstrate a systemic year-over-year pattern of fraudulent misstatements and other inaccuracies,” (3) “pursuant to the Federal Rules of Civil Procedure Rule 19, by order of this Court, the Court shall order AT&T be made a party to this case as a defendant,” (4) the IRS failed to develop facts supporting its position before issuing the notice of deficiency, (5) the burden of proof is on the IRS, pursuant to IRC section 7491(a) and Tax Court Rule 142(a), (6) the notice of deficiency lacked a factual relationship to the petitioners’ liability, (7) the IRS committed “fraud on the Court” and took positions it knew to be false, (8) for various reasons the determinations in the notice of deficiency are incorrect, so the Browns do not owe the tax asserted, and (9) the IRS has “engaged in unauthorized collection activities.” The response did not assert any overpayment for 2015 or any claims for litigation or administrative costs under Tax Court Rule 230 or IRC section 7430.
• The Browns’ Motion to Show Cause
The Court received on March 14, 2019, a Motion to Show Cause Why Proposed Facts in Evidence Should Not Be Accepted as Established from the Browns, filed pursuant to Tax Court Rule 91(f). Their Proposed Stipulation of Facts which accompanied the motion included a preamble listing 13 “new matter” issues. The stipulation included 152 numbered paragraphs of factual assertions with subparagraphs. Some issues and many allegations in the proposed stipulation relate to tax year 2014.
• Judge Gustafson’s Responses
The judge reviewed the Tax Court’s jurisdiction for this case. The Court has jurisdiction over the notice of deficiency for tax year 2015. They do not have: jurisdiction over the disputes between Ms. Brown and her former employer (or the ability to award damages for the dispute); authority under the Federal Rules of Civil Procedure to order a third party to be joined as a defendant; jurisdiction under IRS liens, levies or other collection activity without a timely CDP request (or other required documents); jurisdiction to award fees for filing amended tax returns or any other fees other than those allowed under IRC section 7430. The Tax Court judge is the trier of fact and the Tax Court is not authorized to conduct jury trials. The Anti-Injunction Act generally prohibits injunctions against the IRS, and the Browns showed no applicable exception.
The Browns’ response to the motion for entry of decision and motion for order to show cause includes issues they call “new matter” – a term drawn from Tax Court Rule 142(a). That Rule, however, actually concerns the burden of proof on “any new matter” raised by the IRS Commissioner beyond what the IRS asserted in their notice of deficiency. The Browns did not allege that the Commissioner actually asserted new issues. (In fact, the Commissioner was proposing to concede the 2015 issues in full.) What the Browns call “new matter” is likely a rehashing or elaboration of previous allegations and not issues relating to the 2015 tax year.
The Court determined that the IRS concession for tax year 2015 means there is nothing further to be decided. The IRS motion to quash the subpoena will be granted because it is moot; additionally, it is improper due to overbreadth concerning tax year 2014, for failure to proffer the required witness and mileage fees, and for demanding production somewhere other than the courtroom at the trial session. The Browns’ motion for order to show cause is moot and it proposes a stipulation that is overbroad.
The Court denied the Browns’ motion for order to show cause and granted the IRS motion to quash the subpoena and motion for entry of decision. As a result, there is no deficiency of income tax due from and no refund due to the petitioners for tax year 2015.
Takeaway: Know your audience and pay attention when the Tax Court explains items like jurisdiction and tax procedure to you.
First, the Browns did not understand which IRS notices bring eligibility for filing a petition with the Tax Court. Second, the Browns did not realize when to drop the issues related to the 2014 tax year. Third, do not take items from Tax Court rules and use them without understanding their meaning or context. Fourth, they brought in several issues that did not relate to the case or that were outside the Tax Court’s jurisdiction. I realize the Browns were unrepresented so that excuses some of their ignorance, but they really needed someone to keep them on track. I have a feeling the positive results they gained for tax year 2015 came about despite their efforts.
About William Schmidt
In so many areas of my law practice, taxation and otherwise, it never ceases to amaze me that so many people (including, in one Surrogate’s Court matter, a sitting judge) refuse to take “yes” for an answer.
“The subpoena does not list the production date as the trial date of April 29, but rather lists March 15. The place of production is not the courtroom, but the office of IRS counsel. A letter attached by the Browns indicates they did not include the fees and mileage required by Tax Court Rule 148.”
When I asked a judge how much I had to pay IRS counsel, the judge said I didn’t have to pay anything, but the venue was Tax Court and the date was the date set for trial. I ended up signing the settlement the IRS wrote for $0.00 because I was too ill (having postponed heart surgery twice for Tax Court calendar calls) but I knew I was going to regret missing out on discovery. A few years later I learned about Branerton letters but couldn’t find a sample.
“First, the Browns did not understand which IRS notices bring eligibility for filing a petition with the Tax Court.”
Tax Court doesn’t either, since they keep flip-flopping on the question of whether they get jurisdiction based on the kind of notice that should have been issued when the IRS actually issued a different notice.
But wait, there’s more! In a designated order last week, Judge (“Patience of Job”) Gustafson wrote:
In their motion to vacate (Doc. 46), filed April 23, 2019, the Browns apparently assert–for the first time in any filing in this case–a claim for an overpayment of tax for 2015. They do so by stating at 2, para. 6): [T]he Court overlooked (excusable neglect) paragraphs 13(h), 25, 26 and 34(h) [of the petition (Doc. 1)] during its decision that “there is nothing left for us to decide,” and relative to its Order & Decision that there is no “overpayment due to, petitioners for the taxable year 2015.”
The cited paragraphs 13(h), 25, and 26 appear in a 22-page “Exhibit D” to the petition, and they state that the Browns reported wages, federal income tax withheld, and state income tax withheld on their 2015 Federal income tax return in accordance with a Form W-2 issued by Ms. Brown’s employer for 2015 and that the amounts were “inaccurate”. Paragraph 34(h) later asks the Court to “grant the Browns all other relief the court deems just and proper”. But again, neither the petition nor any of its attachments alleged any overpayment or requested any refund.
In now quantifying the “inaccura[cy]” in the Browns’ 2015 return, their motion to vacate appears to assert (at pages 3-4, paras. 10-11) that the Browns reported Ms. Brown’s wages in an amount that was too great by $232. We note that the top marginal income tax rate in 2015 was 39.6%, gee I.R.C. sec. 1(a), so that this issue might yield for the Browns an overpayment of as much as $92–plus interest–though it might not be that amount ifthey were in a lower bracket for 2015, which we cannot tell.
Upcoming hearing on April 29, 2019
We will order that argument be heard on the Browns’ motion to vacate at the Court’s upcoming trial session in Atlanta, Georgia, on April 29, 2019, and we will call the case at that session to hear this motion. If we were to grant the Browns’ motion under Rule 162, then it would appear that they must also move for leave to amend their petition under Rule 41(a) to plead the existence of an overpayment and request a refund thereof. If that motion were also granted, then we would conduct a trial at that April 29 trial session, at which the issue would evidently be whether the Browns over-reported their 2015 income by $232. Presumably the Browns would have the burden of proof on that issue. See Rule 142(a)(1).
https://www.ustaxcourt.gov/InternetOrders/DocumentViewer.aspx?IndexSearchableOrdersID=288130&Todays=Y