Observations from the ABA Tax Section Meeting

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This week is the ABA Tax Section meeting.  Normally, this is the biggest meeting of the year because it takes place in DC and the Tax Section can attract all of the government speakers.  With everything happening in the tax world at the moment, there would be lots of important players to see in person.  Like almost all meetings, this one is virtual which in some ways makes it easier to attend but in others leaves an empty feeling.


Even though the meeting is not physically in DC, there have been lots of government speakers and things to report from the meeting so far.  Judge Toro, representing the Tax Court, indicated that the Court is pleased with the results of some of the changes it has made to its procedures as a result of the pandemic.  To assist the remote trial process, some documents, such as the stipulation of facts, need to be filed before calendar call.  The Court is also holding many more pre-trial conferences and getting engaged with the parties earlier in the process and this is apparently leading to results that the Court finds pleasing.

While some judges routinely engaged with taxpayers prior to calendar call, for many Tax Court judges their first interaction with taxpayers occurred at calendar call unless the petitioner or the government sought a pre-trial conference.  It always seemed to me that the process would benefit from earlier engagement by the judge assigned to try the case and it does not surprise me that the Court is finding this helpful in moving the cases.  I hope that the practice takes hold and continues post-pandemic because it helps everyone.  

The Tax Court has a relatively high default rate of petitioners who file but get dismissed for failure to properly prosecute.  Certainly, the petitioner who files and does not engage bears some responsibility for their action, but the system seemed designed to promote disengagement.  With over 70% of the petitioners filing pro se, these petitioners receive an answer which in almost all cases denies everything they have alleged in their petition.  A surprising number of pro se petitioners believe that the answer means they have lost the case because they do not understand the role of pleadings.  Then, after the answer, nothing happens on their case for months in many cases because the attorney who answers the case ships it off to Appeals which takes a long time to engage with the taxpayer.

During this period the taxpayers, who were among the 3% of statutory notice recipients engaged enough to petition the Tax Court, lose their interest in the case and drop out ultimately resulting in a dismissal for failure to properly prosecute.  The Tax Court sends them a letter acknowledging their petition and providing some guidance on what will happen with their case but the letter does not really prepare them for the Answer and the long period of silence.  The more the Court engages with them the less taxpayers will drop out of the system and the better prepared they will be when it comes time to try their case or, even better, to resolve it by settlement.  Some of the actions the Court is taking during the pandemic have helped this situation.  It will be interesting to see if these actions statistically make a difference in the number of drop out cases over the long haul.

Earlier this week the Tax Section announced that Special Trial Judge Panuthos received this year’s Distinguished Service Award.  Judge Panuthos is a great selection and his selection provides recognition for the work he has done over decades to make the Tax Court a more inclusive place for the many pro se taxpayers who come there.  The Tax Court recognized Judge Panuthos for his work in 2012 by bestowing upon him the Murdock Award for distinguished service to the Tax Court.  The ABA recognition helps in continuing to highlight the importance of his work in making sure that underrepresented individuals receive proper treatment in the tax system.  

Yesterday, the Tax Section held an event with Judge Panuthos and this year’s Janet Spragens Pro Bono Award winner, Susan Morgenstern, to highlight their work on behalf of low income taxpayers.  Susan was one of the early entrants to the world of low income tax clinics at Legal Services organizations and promoted tax clinics to other Legal Services organizations.  Now, the tax clinics at these organizations represent the largest number of tax clinics.  Because Legal Services organizations serve low income individuals with a wide variety of civil legal problems, getting tax clinics into these organizations has been a vital benefit to providing them with necessary representation as the tax code became the source for more and more benefit programs.  Linking back to the earlier discussion about dismissals for failure to properly prosecute, Susan has pushed the Court for many years to provide stronger engagement to address that problem.

Another topic discussed yesterday at the ABA meeting by a Chief Counsel executive on an issue written about frequently in this blog concerns the timing of supervisory approval in penalty cases.  On May 11, 2021, another IRC 6751(b) case came out holding that the IRS did not approve the penalty in time, Battat v. Commissioner, T.C. Memo 2021-57.  Although arguably not breaking new ground, which is why it came out as a memo opinion, it tossed the penalty because the revenue agent put it in a report before getting approval.  Like many of these cases in the past year, this case goes back to action taken a decade ago.  The docket number in the case is 17784-12 which tells you that it was filed with the Tax Court nine years ago.  Nonetheless, the comments from Chief Counsel at the meeting essentially stated that as the Court pushes the timing of the approval back further and further in time it will force agents to get approval for penalties before they have properly developed the facts.  

I understand the concern but am not sure I agree with it.  Many of the cases coming out relate to a period before the IRS paid attention to the statute.  Now that it is paying attention to the statute, perhaps revenue agents will develop the facts before they issue their reports.  No doubt there will be cases where taxpayers do not work with the agents and the agent will issue a report uncertain about all of the facts.  I hope that the exercise causes agents to pay more attention to penalties rather than being casual about them and I suspect it already has.  The next fight in the circuit courts may occur over the automatic approval cases of 6751(b)(2)(B) and what constitutes, or should constitute, the waiver for penalties imposed  where the IRS seeks the exception from prior approval of “any other penalty automatically calculated through electronic means.”  I think we will hear from Caleb Smith on this issue in a couple of posts in the near future.


  1. Jack Townsend says

    Thanks, Keith.

    Two points

    1. Perhaps for answers in pro se cases, the IRS could have a standard paragraph in the answer that states that the answer is the IRS’s allegations only to set the parameters for what must be engaged and resolved in the litigation by litigation, settlement or waiver and that the allegations are not binding on anyone. This would be like the standard paragraph in DOJ press releases announcing indictments. While such a paragraph would not necessarily be compelled by the rules for answers, if that is really a problem that might be a solution.

    2. On the 6751(b) issue, I still believe that the IRS could do comprehensive regulations (at least as comprehensive as can be discerned from all the litigated cases and the IRS experience) to bring some order to the cases and a rational way to move forward, considering all aspects (including avoiding having to get manager approval before the case for penalties has been adequately developed; indeed, I think getting the approval before the case has been developed is itself an abuse). Certainly, such regulations could be adopted if they are reasonable in the Chevron sense and could even resolve the case commotion under Brand X (accepting the good case resolutions and rejecting the bad ones (there are bad ones)).

  2. Joseph B Schimmel says

    “Nonetheless, the comments from Chief Counsel at the meeting essentially stated that as the Court pushes the timing of the approval back further and further in time it will force agents to get approval for penalties before they have properly developed the facts.” I heard this & don’t believe it at all. Simple proposal: The IRS should not be proposing a penalty until it has developed enough facts for a 30-day letter. The taxpayer’s failure to respond should not alter that simple proposal.

  3. Carl Smith says

    The Tax Court had abandoned answers in S cases for good reason — the waste of IRS attorney time and taxpayer confusion. I feel a bit bad because I think I helped bring back answers in S cases. I complained to the Court that, without an answer, taxpayers had no name of an IRS person to contact about settling a case for months at a time. I did not push for a return to answers, though. I suggested that the Tax Court require the IRS to issue a letter within 60 days of the petition giving the name of the person in the IRS (presumably a Counsel attorney or Appeals Officer) that the taxpayer could contact about the case. The Tax Court’s response (after probably hearing from many others, including judges) was to bring back answers. I still think my proposal better than answers in S cases.

  4. Bob Kamman says

    I propose a matrix that takes into account two types of cases and two types of taxpayers. The two types of cases are statutory notice of deficiency (SNOD) and collection due process (CDP). The two types of taxpayers are good faith (GF) and delay seekers (DS).

    Let’s number them on a grid:

    GF DS
    SNOD 1 2
    CDP 3 4

    Your analysis of current Tax Court case administration points out many of the problems for those in Category 1. The system just doesn’t care about these people. The solution is to increase staffing so that Appeals, Counsel and Tax Court can resolve most of them within a year. A first step would be to require taxpayers to plead whether the facts or the law is in dispute. In most cases, it’s the facts. Then determine whether documents or testimony are needed. Either or both of those can be submitted or reviewed under rules like those for summary judgment. Petitioners may have to be allowed a few free depositions.

    Is the system clogged with Category 4 cases? The best way to discourage taxpayers from claiming a year or two free from collection activity is to give priority to CDP cases. Pleadings should include check-the-box choices of how IRS abused its discretion. This would at least educate petitioners in what is needed to succeed and why IRS wins almost all the cases.

    Accelerating CDP cases would probably encourage Category 2 cases, if the result is lengthier delays for those. Many of these cases are below the pay grade of a Tax Court judge, but everyone deserves a day in court and merits can’t be decided initially. What about a $300 filing fee, refundable if the petitioner prevails? The current exceptions for waivers could be maintained.

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