On Mother’s Day, Les wrote an excellent post on a tough area of the dependency exemption law dedicating the post to his mother. On June 3, I wrote a post about the end of the SAUSA program at Chief Counsel’s office turning lawyers in that office back into tax litigators and in house tax advisors and removing their role as courtroom bankruptcy lawyers. Thinking about these posts reminded me of a bankruptcy case on which I worked about 25 years ago while in Chief Counsel’s office in Richmond, Virginia and the contrast between working on bankruptcy cases and Tax Court cases. The trigger for my thinking was Mother’s Day because I have always thought of this case as my Mother’s Day case.
read more...In the 1980s in Western Virginia (not West Virginia) a bankruptcy judge covered the cities where the court sat including Abingdon and Big Stone Gap. Getting to Abingdon can require some effort but getting to Big Stone Gap requires at least a day of flying and driving from places like Richmond or DC. The bankruptcy judge covering those cities did not particularly like the government as a creditor or it seemed that way to those of us representing the government in cases before him. He also did not like to actually hear cases or it seemed that way. As a consequence, he would continue cases involving IRS debt that came before him.
If you have traveled for a full day to appear before a judge who continues the case without warning or any particularly good reason, it can get discouraging. When this happens over and over, it can get really discouraging. Of course, if you happen to live in these remote cities and do not have to travel far to attend a hearing, this result does not seem so bad. So, the attorneys in the far Western part of Virginia adopted the strategy of placing their clients with difficult tax problems into bankruptcy and just parking them there. Usually, they placed these individuals into individual chapter 11 cases since that chapter does not have required time frames within which something must occur.
I began to develop a large inventory of cases just sitting in bankruptcy court and wanted a strategy for moving them along. So, out of desperation, I began filing motions to dismiss the cases because they had been sitting in bankruptcy for quite some time with nothing happening. The judge would require the debtors to respond to these motions and then schedule a hearing. I coordinated these cases with an assistant United States Attorney in Roanoke who was willing to go to Abingdon and Big Stone Gap. On one occasion I rode with her and we made the trip in about half the time I expected but I arrived safely even if my knuckles were a bit white.
In one of these cases the debtor’s response to my motion to dismiss their case after two or three years of nothing happening was filed on the Monday after Mother’s Day. Their response, debtors were a husband and wife, essentially stated that the mother of the debtor wife was old and in ill health. They expected she would die before too long and when she did they expected that the wife would inherit the estate and they expected that when the wife inherited the estate, they would pay the relatively substantial amount of past due taxes.
I took exception to this strategy as a bankruptcy plan. Of course, they did not formally file it as their plan of reorganization but I thought that even as a proposed plan of action it failed in many respects. I wrote a scathing proposed reply to debtors’ response to my motion talking at some length about how it was filed on the day after Mother’s Day and would a mother really leave her child funds from the estate when the child wrote such a response. I went on at some length expressing my moral indignation as well as skepticism about this course of action since it gave no details about the mother’s age and specific health problems. The response I wrote in no way could even have made it into a pleading filed by the Office of Chief Counsel in Tax Court. In Tax Court everything written must bear a certain tone and correctness. Everything receives careful scrutiny at the local office and frequently at the National Office.
The AUSA took what I wrote, assembled it into a responsive pleading and filed it verbatim. I was somewhat shocked because I thought the AUSA would filter my moral outrage but she liked it. The contrast between the office filters in filing a pleading in Tax Court and bankruptcy court where “anything goes” became abundantly clear. My supervisor basically did not know bankruptcy and did not look at what I wrote. The AUSA did not know bankruptcy in great detail and felt no constraints similar to the ones the Office of Chief Counsel placed on us. When she filed that pleading and I showed it around the office (not to the supervisor) jaws dropped but in a pleasant way.
Well, the bankruptcy judge who always continued cases, also read my morally indignant pleading. I did not go to Big Stone Gap for the hearing but the AUSA said that the judge got a twinkle in his eye when this case was called. He did not continue the case and ordered the debtors to show cause why their Chapter 11 case should not be dismissed giving them about 30 days to file an acceptable plan or reorganization. Living vicariously through the AUSA, I celebrated a huge victory for my client in moving the case forward and for freedom of expression in pleadings.
I agree with the decision to end the SAUSA program because of the austere times at the IRS. I mourn for the Chief Counsel lawyers who have practiced bankruptcy for the past few decades the loss of the freedom of that forum as well as the relationships that they could develop with bankruptcy lawyers and with the local bankruptcy judge by working with them on a regular basis. It is much more difficult to develop rapport with the judge in Tax Court cases, particularly in a small city like Richmond, where the judges rotate and may only come to Richmond once or twice a decade. The ability to get to know the bankruptcy judge and members of the bankruptcy bar, made bankruptcy practice different from tax practice and special. I have been around the Tax Court long enough now that I know many of the judges and that is nice. It was never that the Tax Court judges were less friendly than local judges but the structure makes it much harder to develop a relationship. Chief Counsel attorneys in field offices now return to tax practice alone barring further developments.
Yes, there is a contrast between litigating a tax case in a bankruptcy court and litigating one in the Tax Court:
In a bankruptcy court, you tend to receive a fair decision; in the “Tax” Court, you tend to receive the three-letter word in its name.