Designated Orders: Whether to Set Items Aside and Denied Motions for Summary Judgment (4/15/19 to 4/19/19)

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This week brought a series of five designated orders. The subjects include Collection Due Process, Notices of Federal Tax Lien, settlements agreements, innocent spouse analysis, and denied motions for summary judgment.

Setting Aside a Notice of Federal Tax Lien?
Docket No. 3402-18 L, Esteban Baeza v. C.I.R., Order & Decision available here.

This case concerns Collection Due Process (CDP) for a notice of federal tax lien for years 2012 to 2015.

Mr. Baeza’s issues for 2012 are quickly dealt with. For 2012, Mr. Baeza filed an amended tax return that took care of his liability and resulted in a tax refund. The lien has been released so the IRS moved that the case be dismissed for that year on grounds of mootness. Mr. Baeza did not object so the Court granted that motion.

For years 2013 to 2015, Mr. Baeza had liabilities for those years and eventually entered into an installment agreement concerning the three years. However, the IRS machinery was already working and days before he entered into the installment agreement, they sent him a Notice of Federal Tax Lien, showing liabilities totaling about $58,000 for the three years. It is presumed he did not have that notice before entering into the installment agreement.

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Mr. Baeza’s representative sent a form 12153 to the IRS, requesting a Collection Due Process hearing. The form requested withdrawal of the lien because of the installment agreement. There was no dispute of the liability or proposal of collection alternative (beyond the installment agreement in place). The argument was that the lien was improper due to the pending installment agreement.

IRS Appeals determined that all required legal procedures were followed in filing the notice of federal tax lien. The notice of determination had an attachment explaining why withdrawal was not appropriate.

The IRS filed a motion for summary judgment but Mr. Baeza did not respond. Because it is reasonable the IRS filed a notice of lien in order to protect its ability to collect in the event Mr. Baeza fails to fulfill the terms of the installment agreement and Mr. Baeza also did not provide arguments against that filing, Judge Gustafson granted the motion for summary judgment concerning tax years 2013 to 2015.

Takeaway: The notice of federal tax lien filing is routine for the IRS in collection cases, even when a taxpayer sets up an installment agreement. As the standard of review in Tax Court for these CDP cases is abuse of discretion by the IRS, the petitioner will need to actually make an argument concerning an abusive IRS practice in order to overcome the IRS motion for summary judgment.

Setting Aside a Signed Settlement?
Docket No. 27486-16, Edward Roberson & Connie Roberson v. C.I.R., Order and Decision available here.

The IRS sent the Robersons a notice of deficiency for 2011 and 2012 and Mr. Roberson a notice of deficiency for 2013 and 2014. The Robersons timely petitioned the Tax Court for a redetermination of both notices of deficiency. The IRS eventually amended its answer to assert Schedule C gross receipts for 2014.

The case was calendared for trial and called on November 5, 2018. After the case was called but before trial, the parties submitted a signed stipulation of settlement. The parties agreed in the stipulation that Mr. Robersons’ 2014 Schedule C gross receipts were $108,717 and gross expenses were $30,616. Counsel for both parties signed the stipulation. The Court gave the parties until January 7, 2019, to submit a decision reflecting the stipulation.

In November 2018, the IRS mailed the Robersons a proposed decision reflecting the stipulation for all years at issue. The IRS returned to work on January 28, 2019, (following the government shutdown) and found the Robersons had not signed the decision. They informed the IRS they would not sign the proposed decision.

The IRS filed a motion, asking the Court to enter a decision pursuant to the stipulation of settlement. The Robersons responded to the motion with new calculations adjusting the 2014 Schedule C gross receipts from $108,717 to $68,019 and gross expenses from $30,616 to $55,268, with penalties and interest adjusted accordingly.

Judge Buch analyzed the situation, stating that the claim of an error in the stipulation does not relieve the Robersons from responsibility for signing the stipulation. The Court may modify or set aside a stipulation that is clearly contrary to the facts, but does not set aside a stipulation consistent with the record simply because one party claims the stipulation is erroneous. They may grant relief if a party asserts contractual defenses, but a unilateral mistake of fact in a binding, unambiguous stipulation is not a ground for relief.

In this case, the Robersons did not present contractual defenses. They raised the issue of the error only after entering into the stipulation. Their unilateral mistake (if there is one) is not grounds to set aside a contract. The Court is unlikely to grant relief from a stipulation entered into after considerable negotiation. The Robersons note that the stipulation was following a “take-it-or-leave-it” offer by the IRS. Judge Buch points out the Robersons and their counsel were on notice of the IRS amended answer so all parties signed the stipulation long after being aware of what was at issue and had ability to go to trial. The judge was reluctant to relieve the petitioners from a stipulation after already entering into the stipulation with full knowledge of the relevant facts, so granted the IRS motion for entry of decision.

Takeaway: This case details the difficulties to avoid signing a decision after signing a stipulation. The stipulation will generally bind the parties and the judge detailed the few exceptions. One should expect to sign the decision after signing a stipulation in a Tax Court case.

Innocent Spouse Analysis
Docket No. 5680-18S, Elaine S. Thomas, Petitioner, & Robert Roy Thomas, Intervenor, v. C.I.R., Order (bench decision) available here.

The petitioner and intervenor married in 1987 and divorced in 2016. The parties filed a joint tax return in 2012 and had a liability for that year of $5,551, which the parties stipulate was due to the intervenor.

The petitioner had filed for innocent spouse relief for that year, which was denied by the IRS, and filed a subsequent petition to Tax Court concerning that decision and the intervenor filed to be a party to the Tax Court case.
Judge Carluzzo agrees with much of the analysis and conclusions in the IRS pretrial memorandum and comments on the areas of disagreement. First, the judge finds that petitioner did not know, or have reason to know, that the intervenor would not pay the unpaid liability shown on the return. The judge considers the factor neutral, rather than weighing against relief, as the IRS categorized it.

In the marital separation agreement, both former spouses agreed to split the IRS liability. The judge weighs this factor against granting relief, though the IRS categorized it as neutral.

The judge notes that he arrived at the same score of factors as the IRS – one in favor, one (possibly two) against relief, and the rest neutral – but the analysis is not simply mathematical.

The judge details what influenced him concerning the case. He is particularly influenced by petitioner’s agreement to pay half the 2012 liability. Next, by the decision of the spouses to pay other expenses than the 2012 income tax liability as they had the resources to pay the liability but chose to save or allocate funds for other purposes. Finally, that the liability is mostly, or entirely, due to intervenor.

Giving effect to the marital settlement agreement, the judge sees no reason why it is inequitable to hold the parties liable for their shares of the debt. The decision is then to provide innocent spouse relief to petitioner regarding the excess of one-half of the unpaid 2012 federal income tax liability reported on the 2012 tax return. Essentially, each of the former spouses is liable for one-half of the tax debt, reflecting their marital settlement agreement.

Takeaway: As noted, innocent spouse relief is not a mathematical decision concerning what is in one column or another. The judge will consider the facts and circumstances to determine what will weigh heaviest concerning relief.

Denied IRS Motions for Summary Judgment
1. Docket No. 19146-18 L, Jason E. Shepherd v. C.I.R., Order available here.
In this Collection Due Process case before Tax Court, Petitioner filed for review of a Notice of Federal Tax Lien concerning unpaid employment taxes and trust fund penalties concerning unpaid employment taxes quarterly periods from 9/2010 through 12/2011. The IRS filed a motion for summary judgment and Petitioner opposed the motion by asserting challenges to material facts.

Of note for trust fund penalties is that a Letter 1153 must either be personally served on the responsible person or sent by certified mail to the responsible person’s last known address. In the record on the IRS’s motion there is no copy of a Letter 1153 or any proof that it was either personally served on the petitioner or sent by certified mail to his last known address. Since the record did not prove that the Appeals Officer verified all applicable laws or administrative procedures were met concerning the assessment of the section 6672 penalties, Judge Leyden denied the IRS motion for summary judgment without prejudice.

2. Docket No. 1781-14, John Edward Barrington & Deanna Barrie Barrington v. C.I.R., Order available here.

The petitioners have previously been convicted for tax evasion based on guilty pleas – John Barrington for tax year 2005 and Deanna Barrington for tax years 2003 through 2005. The Court granted in part and denied in part an IRS Motion for Partial Summary Judgment through its order dated June 19, 2015. The order held the IRS was entitled to summary judgment so far as the petitioners fraudulently failed to file tax returns. The order denied the request to the extent the IRS sought to collaterally estop the petitioners from contesting they failed to report certain amounts of income for the years at issue and further collaterally estop John Barrington from contesting he fraudulently failed to file tax returns for tax years 2003 and 2004.

The IRS filed a new Motion for Summary Judgment on February 22, 2019. This motion included several of the same arguments and factual assertions as before, but now includes the argument that John Barrington made “judicial admissions” at a hearing held December 17, 2018 (with those admissions eliminating the need for trial). IRS Counsel cites his statements of “…I’m not arguing the fraud amount” and “…cannot argue the fraud on it, which we’re not.”

Judge Panuthos reviewed the 28 page transcript and did not come to the conclusion that John Barrington made a clear, deliberate and unequivocal factual assertion relating to the issue of fraudulent failing to file federal income tax returns for tax years 2003 and 2004. Since there is a dispute as to material fact, the Court denied the IRS’s motion.

Takeaway: These look to be times the IRS either tried to rush procedure or believed there was no dispute as to material fact and lost regarding motions for summary judgment.

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.

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