Hints of Coronavirus, Interlocutory Appeal, and Nonresponsiveness: Designated Orders 3/9/20 to 3/20/20

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I am going to be writing about 2 weeks in my report on designated orders for March.  The first week is a week that I am covering for Samantha Galvin as she nears the end of her maternity leave (which I trust was not your typical maternity leave).  The second week is my normal week in the rotation to review designated orders.  The first week had 9 orders (with 2 additional consolidated orders) and the second week had 3 (with 5 additional consolidated).

I thought it would be better to group the orders thematically rather than chronologically.  The orders cover a broad range of topics that include first hints of coronavirus scheduling issues, interlocutory appeal, non-responsiveness (both on the petitioner and respondent sides), tax protestor-style arguments, Collection Due Process and more.

First Coronavirus Issues

Docket No. 23069-16, Kevin John, Sr. & Whitney S. Witasick v. C.I.R., Order available here.

In this case, two issues are involved.  First, the IRS filed a motion for leave pursuant to Rule 41(a) regarding computational errors in the original notice of deficiency.  Second, the petitioners responded with a motion to continue, stating that the IRS surprised them with this motion so close to trial and that if the Court grants the motion, they will need to hire counsel.

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With regard to the IRS motion, the Court is troubled since the motion was filed more than 3 years after the notice of deficiency.  The case is facing its sixth continuance and the IRS motion came only 18 days prior to (the since cancelled) trial.

The petitioners moved for a continuance to the April 14 docket.  In their email with IRS counsel, they mention a continuance for trial until October; however, IRS counsel only agreed to a continuance to an April 14 trial.

The continuances for trial in this case were starting to be affected by the coronavirus issues (alluded to as “reasons unrelated to the pending motions in this case” for cancellation of the March 16 Philadelphia trial session).  In fact, this order was issued two days after the first Tax Court press release that cancelled trial sessions because of coronavirus issues (that press release cancelled trial sessions for March 16 through April 3).  That was the first of three press releases issued by the Tax Court, ultimately cancelling the rest of the then-currently scheduled trial sessions for the year, which were trials scheduled through July 3.

The IRS motion for leave to file first amendment to answer is granted.  The petitioners’ motion for continuance is denied.  The parties are to file a joint status report on or before May 11.  If the parties have not settled, they are to report on the preparation of the stipulation of facts and preparation for trial.

Interlocutory Appeal

Docket No. 19493-17, Belair Woods, LLC, Effingham Managers, LLC, Tax Matters Partner v. C.I.R., Order available here.

The subject matter in this case involves a charitable contribution deduction claimed by Belair Woods for a conservation easement.  The Tax Court has issued two opinions already in order to address issues in the case.  Within the second of the opinions, the Court held that the IRS met the supervisory approval requirements of Internal Revenue Code section 6751(b)(1) regarding penalties asserted under Code section 6662(c),(d) and (h).  Belair Woods filed a motion to certify for interlocutory appeal regarding the supervisory approval issue and the IRS filed a response objecting to the motion.

For those of you (like me) who do not work often with interlocutory appeals, they are appeals filed regarding a ruling by a court made before the trial has concluded.  Such an appeal asks for appellate review regarding an aspect of the case before the trial’s conclusion.

Here is the law regarding Tax Court interlocutory appeals as provided within the order (where you can find citations) – Internal Revenue Code section 7482(a)(2)(A) permits certification of an interlocutory order for immediate appellate review only if there is the conclusion that “a controlling question of law is involved with respect to which there is a substantial ground for difference of opinion and that an immediate appeal from that order may materially advance the ultimate termination of the litigation.”  Certification of an interlocutory order for immediate appeal is an exceptional measure that courts employ sparingly.  Before certifying such an order, the trial judge must confirm that the order involves a “controlling question of law” and that “substantial ground for difference of opinion” exists for the correctness of the determination underlying the order.  The judge must also decide whether an immediate appeal will “materially advance the ultimate termination of the litigation.”  To decide those factors, the Court must weigh policies favoring the “avoidance of piecemeal litigation and dilatory and harassing appeals.”  A “controlling question of law” must be a pure issue of law that “the court of appeals ‘can decide quickly and cleanly without having to study the record.’”  A “controlling question” is not simply “a question which if decided erroneously would lead to a reversal on appeal.”  Instead, it is one that is “serious to the conduct of the litigation.”  The requirement that an immediate appeal “materially advance the ultimate termination of the litigation” means the resolution of the controlling legal question “would serve to avoid a trial or otherwise substantially shorten the litigation.”

The Court does not believe the supervisory approval issue involves a “controlling question of law” or that immediate appeal of the issue would “materially advance the ultimate termination of the litigation.”  The supervisory approval is not serious to the overall conduct of the litigation and only relates to the penalties.  It is not ultimately relevant to the decision whether Belair is entitled to the deduction for the easement.

The immediate appeal would also not avoid or meaningfully shorten the litigation.  In fact, it would do the opposite.  Witnesses involved in the tax preparation would likely need to testify twice with regard to the charitable contribution deduction at trial and also the supervisory approval issue at interlocutory appeal.  Thus, the interlocutory appeal would protract, not shorten, the proceedings needed to resolve the issues.

The Court denied the Belair Woods motion to certify for interlocutory appeal.

I do not have much to add as I agree that the interlocutory appeal would extend the proceedings.  I presume Belair Woods was taking a desperation move to see if the interlocutory appeal could get the penalties removed.

Nonresponsive Respondent

  • Docket Nos. 13382-17, 13385-17, 13387-17 (consolidated), Adrian D. Smith & Nancy W. Smith, et al., v. C.I.R., Order available here.

The petitioners filed a motion to compel responses to interrogatories regarding their first set of 15 interrogatories to the IRS.  The case is about the research credit under Internal Revenue Code section 41 and the interrogatories ask the IRS to explain what aspect of the four-part test the IRS asserts they are not able to meet with regard to the research credit.

The Court reviews the responses and finds that the IRS was not sufficiently responsive in 14 of the 15 interrogatories.  They have a deadline of one week to provide full, complete and responsive answers or they may be precluded from introducing evidence that would have been responsive to petitioners’ interrogatories, or other sanctions as the Court may deem appropriate.

  • Docket Nos. 27268-13, 27309-13, 27371-13, 27373-13, 27374-13, 27375-13 (consolidated), Edward J. Tangel & Beatrice C. Tangel, et al., v. C.I.R., Order available here.

In this case, also about the research credit, the IRS did not respond to informal discovery.  The petitioners then served 22 interrogatories (with subparts) and 19 requests for production of documents connected to those interrogatory requests.  The IRS generally objected to the discovery requests, asserting they were unduly burdensome, called for legal conclusions, and exceeded the 25 interrogatory limit.

In 2018, the Court issued an order directing the parties to select a sample of research and experimentation projects for trial.  The parties agreed on 14 sample projects.  The petitioners asked the IRS to revisit the discovery responses by focusing on the 14 projects, but the IRS indicated their answers had not changed.  In 2020, the petitioners sent second sets of interrogatories and of requests for production of documents.  This time, the interrogatories were 15 questions limited to the 14 projects.

The IRS responded that no response was required to the interrogatories because petitioners exceeded the number of interrogatories, “the Commissioner is not required to prepare a statement of every fact or detail known to him,” and “petitioners bear the burden of proving their entitlement to the research credit.”  As they said no documents were identified in the interrogatories, they declined to identify or produce any documents.

In the Court’s analysis, the interrogatories did not exceed the limits of Rule 71(a).  The IRS is not required to state every fact known or a statement of legal authorities upon which they rely.  However, it is necessary for each party to know the position of the other party.  The discovery requests are designed to inquire into the IRS contentions.  The IRS response is insufficient to allow the petitioners to reasonably prepare for trial.

The order grants the petitioners’ motion in part, requiring the IRS to complete their supplemental responses to the interrogatories with respect to the 14 projects in a month’s time.  The motion is denied in part that the IRS is not required to disclose the legal authorities upon which they rely and they are not required to explain how each document relied upon relates to their contentions.

Even though these cases have different judges, both of these cases involve nonresponsive IRS counsel during the discovery phase regarding research credit cases set for trial in Chicago.  Maybe I am wrong, but that looks like a pattern to me.

Non-Responsive Petitioners

  • Docket No. 25051-17S, Sandra Adams Griffin v. C.I.R., Order of Dismissal and Decision available here.
  • Docket No. 2524-19, Justin Alexander Boyte v. C.I.R., Order of Dismissal and Decision available here.

In both of these cases, Judge Gale documents how the petitioners were contacted and did not respond to the Motion to Dismiss or appear in court for trial.  The judge granted the IRS motions to dismiss and dismissed the cases for failure to properly prosecute, deciding the respective deficiencies against the petitioners.

Collection Due Process Cases

  • Docket No. 14883-19 L, R. Dianne Varick, v. C.I.R., Order and Decision available here.

This case is based on Ms. Varick owing $71,961.21 for 2015.  She submitted a timely Form 12153 for a Collection Due Process hearing regarding proposed levy action.  She expressed interest in an installment agreement of $1,000 per month.  Ms. Varick submitted the requested Forms 433-A and 433-B.  In the telephone hearing, the settlement officer determined that an appropriate minimum payment for Ms. Varick would be $1,050 per month.

Ms. Varick protested, saying she could not pay that amount.  She said she could not even afford the $1,000 per month, but felt obligated to offer at least that amount.  She submitted a revised 433-A.  The settlement officer recomputed the amounts and found that Ms. Varick had disposable income of $1,913 and could pay an installment agreement amount of $1,100 per month.  Ms. Varick again stated she could not afford the amount.

The notice of determination followed, which led to the petition to Tax Court.  Upon the judge’s review, the amount proposed by the settlement officer had been within $100 of the amount proposed by Ms. Varick.  There was found to be no abuse of discretion, the IRS motion for summary judgment was granted, allowing them to proceed with the levy.

I admit to having mixed feelings here.  On the one hand, I think they might have been able to come to a compromise on the installment agreement.  On the other, if Ms. Varick looks to be able to afford the higher installment agreement on paper she might have protested the proposed installment agreement too much.

  • Docket No. 11424-19 L, Research Scientific Services LLC v. C.I.R., Order and Decision available here.

This is a Collection Due Process case regarding a business based on forms 940 and 941.  The aggregate employment tax liabilities, including interest and penalties, exceeds $200,000.  Mr. Moffatt, an officer of Research Scientific Services LLC and its representative, thought his negotiations on his individual tax issues also applied to his business tax issues.  That is the ultimate mix-up.

Mr. Moffatt is now on a payment plan regarding his individual tax issues.  He would like to resolve the business tax issues and the Court mentions potential for the LLC to have collection alternatives like an installment agreement or Offer in Compromise.

Mr. Moffatt, on behalf of the business, did not submit missing tax returns, a completed Form 433-B, or provide supporting documentation in relation to the Collection Due Process hearing.  As a result, the settlement officer did not have abuse of discretion.  The IRS motion for summary judgment was granted and the levy action is sustained.

While I feel sympathy for Mr. Moffatt, it sounds like he mismanaged the business, but it wound up with the correct result in court.

Tax Protestors?

Docket No. 7073-19, Ryan Foster v. C.I.R., Order available here.

Docket No. 7196-19, Jo Ann Sharp & Randall W. Sharp v. C.I.R., Order available here.

Docket No. 7077-19, Jo Ann Sharp v. C.I.R., Order available here.

What we have here are a series of similar orders from Judge Copeland.  In each, the petitioner(s) filed a motion for summary judgment.  In those motions, they list seven points that mostly focus on Internal Revenue Code section 280E.  The arguments allege violations that the IRS violated the constitutional rights of the petitioners with regard to the Fifth Amendment, Sixteenth Amendment, Eighth Amendment, and Fifth Amendment to the United States Constitution, among other arguments.

What follows that is an analysis regarding motions for summary judgment.  The motions were not supported by affidavits or declarations made on personal knowledge or by documents.  Without the supporting statements or documents, factual assertions in a summary judgment motion are not admissible evidence.  The motions were all denied without prejudice.

My take on these matters is that these were frivolous tax protestor-style arguments that the Court quickly denied.

Petitioner Motion to Dismiss for Lack of Jurisdiction

Docket No. 9095-19, William Michael Shumer & Susan Elaine Shumer v. C.I.R., Order available here.

The petitioners filed a motion to dismiss for lack of jurisdiction regarding their 2016 tax year notice of deficiency.  Their first argument, which is about the notice, does not get very far.  They do not argue whether it was timely filed or dispute whether they received it.  No, they state that the IRS employee did not have authority to sign the notice.  That argument is quickly dismantled – the notice of deficiency is not required to be specially signed by an authorized agent.

For their second argument, the petitioners argue regarding an IRS letter they received before filing the petition that the IRS determined they owe no additional tax.  The petitioners are concerned regarding their prayer for relief, where they requested the Court abate all penalties and determine they are due a refund of $75,325.27.

The Court denies the motion to dismiss.  Also, the penalty and refund issues are ripe for trial; the case was scheduled at that time for trial June 15 in Knoxville, Tennessee.

On its face, I would say this unrepresented couple sounds confused by the process.  It did not help anything if the IRS actually sent a letter like they claim.  In my practice, I have seen contradictory letters from the IRS.  It does not help anyone’s understanding of matters when the IRS mails out contradictory messages.

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 3 Kansas City metro area Low Income Taxpayer Clinics. He records and edits a tax podcast called Tax Justice Warriors and is now an adjunct professor for Washburn University School of Law.

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