Supreme Court Finds For Government in Polselli Summons Litigation

Last week, in Polseilli v IRS the Supreme Court held for the government, finding that the IRS need not notify third parties when it issues a summons in the aid of collecting some other person’s tax liability.

Why is notice important? Under the statutory scheme set out in Section 7609, the entitlement to notice is the ticket to a waiver of the government’s sovereign immunity. Without the right to notice, there is no clear path to a federal district court. The opinion brings into sharp relief how the government’s power to gather information that may help it collect taxes trumps a third party’s privacy interest in sensitive and personal information.

While Polselli is a resounding government victory, it does leave the window open ever so slightly to push back against the IRS’s broad summons’ powers, even in collection cases. And when the government is seeking information about anyone identified in a summons for the purposes of determining a liability, Polselli does not disrupt the IRS’s requirement to notify anyone identified in the summons.


There are two opinions in Polselli, a unanimous opinion by Chief Justice Roberts and a concurrence by Justice Jackson that Justice Gorsuch joined. I will briefly summarize them and offer some observations below.

The main opinion mostly walks through the statutory analysis of Section 7609(c)(2)(D). That section provides that the IRS need not provide notice to a person “who is identified in the summons,” …(1), if the summons is: “issued in aid of the collection of— “(i) an assessment made or judgment rendered against the person with respect to whose liability the summons is issued; or “(ii) the liability at law or in equity of any transferee or fiduciary of any person referred to in clause (i).”

As Chief Justice Roberts explains, to fit within the language in (i), a summons must satisfy three conditions:

  • First, a summons must be issued in aid of collection;
  • Second, it must aid the collection of an assessment made or judgment rendered; and
  • Third, a summons must aid the collection of assessments or judgments against the person with respect to whose liability the summons is issued.

What led the Court to accept cert was that the Ninth Circuit in the Ip case added some gloss to the statute, effectively limiting the circumstances when no notice would be required to situations when the taxpayer has a legal interest in accounts or records summoned by the IRS. When the Sixth Circuit declined to follow Ip, there was a clear circuit split.

The Supreme Court did not embrace the Ninth Circuit’s approach:

None of the three components for excusing notice in §7609(c)(2)(D)(i) mentions a taxpayer’s legal interest in records sought by the IRS, much less requires that a taxpayer maintain such an interest for the exception to apply.

The opinion goes deeper into the statutory analysis, but the main takeaway is that the Court declined to read an exception that Congress did not clearly add, emphasizing that the statutory term “in aid of collection” is broad, with “aid” meaning to help or assist.

The opinion applies these broad terms to the case at hand, noting that the IRS had a reasonable belief that Polselli was shielding assets in other entities and perhaps had effective control over bank accounts which he had no legal interest. And for good measure the opinion details how clause (ii) in Section 7609(c)(2)(D), which provides another exception to notice when pursuing a summons to aid in collecting the delinquent taxpayer’s tax debt from transferees or fiduciaries, is not superfluous in light of how clause (ii) may apply when the IRS is attempting to collect taxes from those third parties in the absence of an assessment, a rare but not impossible scenario (see slip opinion, p. 10).

What of the slight window to challenges to collection summonses that I referred to earlier in this post? At oral argument, as the opinion noted, the government conceded that its power to summons is not limitless, and proposed the following test:

So long as a summons is “reasonably calculated to assisting in collection,” it can fairly be characterized as being issued “in aid of ” that collection. Adding some more detail, at oral argument it stated  that the “third party should have some financial ties or ha[ve] engaged in financial transactions with the delinquent taxpayer.”

But the Court declined to adopt this test, as neither party briefed it and it was “not the case to try to define the precise bounds of the phrase ‘in aid of the collection.’”

This is the kind of case that rightfully raises privacy concerns. When, as in Polselli, the government seeks records from the taxpayer’s wife and a law firm and can do so without telling anyone other than the summoned party it disrupts a reasonable expectation in the privacy around one’s sensitive records and information. To be sure, Polselli himself put the third parties in harm’s way by not paying his taxes, and the government is prohibited from disclosing this information to other third parties, but that is unlikely to satisfy someone whose records are released to the IRS without their knowledge.

As the government noted in briefing (see p. 46), some cases such as the Second Circuit’s 2016 Haber v US have entertained limited discovery following a summons issued to aid in collection. Haber involved a summons to a bank purportedly to aid in collection of an assessed liability, and following the taxpayer’s petition to quash, the district court required the government to prove that its summons was in aid of collection.

For litigants interested in the contours of future challenges, Justice Jackson’s concurrence provides a possible roadmap. After recounting how the government’s interest in collection generally trumps the right to notice, the concurrence notes that the government’s right to pursue this information without informing affected parties should yield in certain circumstances:

But, depending on whose information the summons seeks (for example, an innocent third party’s), or the nature of the requested records, it might not be reasonable to conclude that providing notice would frustrate the IRS’s tax-collection goal. And when that is the case, it might unjustifiably tip the scales in the other direction (i.e., entirely in the IRS’s favor) to allow the IRS to proceed without notice just because its delinquency resolution process has entered the collection phase.

Justice Jackson continues, emphasizing that “the statute’s balancing of interests indicates that Congress did not give the IRS a blank check…” Justice Jackson expresses disbelief that the 7609(c)(2)(D)(i) exception could “so dramatically” upset Congress’ objective of allowing courts to check the IRS’s efforts to obtain information “no matter how broad the summons is or how potentially intrusive that records request might be, so long as the agency thinks doing so would provide a clue to the location of a delinquent taxpayer’s assets.”

The concurring opinion expresses reservations about the IRS having a blank check “any time a tax-delinquency matter enters the collection phase.” Noting that this type of inquiry is likely fact specific, she urges courts, and the IRS, to be “ever vigilant” in determining when notice is not required. 

I suspect that the next step will be litigation attempting to cabin precisely when a summons is issued “in aid of collection”, though that litigation is likely dependent on third parties, rather than the IRS, telling interested parties of the summons. Balancing the government’s interest in searching for assets from recalcitrant taxpayers without tipping their hand with the legitimate privacy interest in sensitive information also lends itself to a legislative fix.

Despite a unanimous opinion, this is likely not the last chapter in this story.

IRS Loses Injunction Case Against Mother After Raising Its Eyebrow

This time of year, we honor mothers.  Perhaps the IRS should have brought this case earlier or later in the year.  In an opinion issued just two days after Mother’s Day adopting the Magistrate’s Report and Recommendation issued 11 days before Mother’s Day, the district court in United States v. DuBois, No. 9:23-cv-80279 (S.D. Fla. 2023) decided not to enjoin a mother from using proceeds from a settlement.  For different reasons prior posts have noted Mother’s Day here and here

The issue in the DuBois case turns on the interest of her son in the settlement which in turn depends on the proof the IRS can put forward.  This case serves as a good one for explaining the tactic of relying on cross rather than positive evidence and why that tactic fails here.


Robert DuBois and his mother are beneficiaries of a trust.  In 2016 they brought an action against the trustee for breach of fiduciary duty.  While that suit was pending, the IRS brought suit against Mr. DuBois in 2021 for failure to pay income and other taxes.  The suit against Mr. DuBois resulted in a judgment for the IRS of almost $1.3 million.

On January 18, 2022, the IRS (or DOJ) met with Mr. DuBois to discuss payment of the judgment including his interest in the lawsuit initiated in 2016; however, the discussion did not result in an agreement.  The following day, Mr. DuBois and his mom met with their adversary in the suit against the trustee and that discussion led shortly thereafter to a global agreement to settle for $665,000.

After the agreement, Mr. DuBois’ attorney advised the opposing party that Mr. DuBois would not be a party to the settlement as he had previously assigned his interest in the action to his mother.  Although the opinion does not say this, it appears that he failed to mention that assignment during his discussion of the case with the IRS on January 18.

Mr. DuBois’ attempt to back out of signing the settlement agreement led the fiduciary to file a Motion to Enforce Settlement Agreement.  This reminded me of cases in which taxpayers sought to back out of settlements with the IRS which we have discussed previously here.  The court told Mr. DuBois he had to sign because the settlement was an enforceable agreement.  He signed as ordered and the defendant paid over the settlement amount to the attorney for Mr. DuBois and his mother.

Before signing the settlement agreement, however, Mr. DuBois also signed an assignment agreement assigning all of “his right, title, and interest in any settlement proceeds arising” from the suit to his mom.  The assignment called for no consideration other than her agreement to indemnify him from any claims arising out of his share of the proceeds.  It’s easy to see why the IRS would seek a fraudulent conveyance under these circumstances.  The facts are classic.  Despite a son’s natural affection for his mother and despite need to give her something for Mother’s Day, this gift struck the IRS as a bit much.

But, this is a story about the failure of the IRS to obtain an injunction so the story does not end here with what looks like a clear winner for the IRS.

The IRS brings a motion for preliminary injunction seeking to keep the mother from dissipating the proceeds of the settlement.  In a hearing on that motion, Peter Feaman, the attorney for the mother and son in the suit against the fiduciary, was called to testify.  He says that the son had verbally agreed to assign his interest at an earlier point and that he had advised the son to do so because the son’s claim against the fiduciary lacked merit.  The IRS’s unstated response is “Yeah, sure.”

The court notes that:

To prevail on a fraudulent transfer claim under 28 U.S.C. §3304(a)(1), the Government must show: (1) the transfer was made after the Government’s claim arose; (2) the debtor did not receive reasonably equivalent value in exchange for the transfer; and (3) the debtor was insolvent at the time of the transfer. United States v. Andrews, No. 1:09-CV-112 (HL), 2011 WL 13323634, at *2 (M.D. Ga. July 13, 2011) (discussing the elements of a fraudulent transfer claim).

The IRS argues Mr. DuBois should have received half of the settlement (less attorney’s fees – for those of you wondering about whether the attorney could take his fee before the IRS receives all of the proceeds based on its lien against Mr. DuBois see the superpriority provision of 6323(b)(6) allowing attorneys a superpriority in this situation even against a filed federal tax lien for creating the fund except in situations where the defendant is the federal government.)

The court cites again to the testimony of Peter Feaman who explained that during discovery in the case facts developed showing the son had lost his beneficial interest in the trust.  Mr. Feaman said that he decided to keep Mr. DuBois as a party because he felt this would help with negotiations.  He further said that he would have dropped the son if the case had gone to trial.  Other than cross-examining Mr. Feaman the IRS put on no affirmative evidence regarding the value of Mr. DuBois interest in the settlement.  I don’t consider the failure of the IRS to put on affirmative evidence to be a knock on the IRS or the DOJ attorney representing them in this case.  In a high percentage of cases the taxpayer controls the information and the government’s case is based on puncturing holes in the credibility of the taxpayer or the taxpayer’s witness.  My former colleague, Jan Pierce, described the government’s typical trial actions in these cases as “the raised eyebrow.”  Certainly, the facts here do merit a raised eyebrow; however, this is also a case in which the IRS is seeking an injunction and that raises the bar a bit.

The court’s take on the raised eyebrow here is

The Court finds Attorney Feaman’s testimony to be credible. As the moving party, the Government bears the burden of showing its entitlement to the “extraordinary and drastic remedy” of a preliminary injunction. All Care Nursing Serv., Inc., 887 F.2d at 1537. This is especially true where the Government essentially seeks a pre-judgment freeze of assets in the possession of a third party by way of an injunction. The Court finds the Government has not met this burden. This does not preclude a different result at trial, where the Government might come forward with different evidence to rebut Attorney Feaman’s opinion as to the value of Son’s interest in the settlement proceeds.

So, the IRS will have a second chance to win the case but at this stage the raised eyebrow does not work to win the issue.

The court notes that three other elements exist in order for the IRS to win, says that they don’t matter since the IRS must win all four elements and then proceeds to go through the other elements anyway.  It finds the other three elements would not keep it from issuing the injunction had the government prevailed on the first element.

The IRS does not bring many injunction cases of this type.  Perhaps the problem here is one reason.  In order to win it needed positive evidence and not just the unstated assumption that this smells to high heaven.  It could have hired another lawyer as an expert witness to evaluate the case and challenge the testimony of Mr. Feaman.  It made a tactical decision not to do so.  Maybe it would change tactics in a future case, but my guess is that it will most often continue to rely on the raised eyebrow.

Old Habits Die Hard

For almost a quarter century the Tax Court dismissed late filed petitions in Collection Due Process (CDP) cases because it viewed the 30-day time period for filing these petitions as jurisdictional with no exceptions for failed delivery, late delivery, illness or other bases for equitable tolling.  An order issued on May 15, 2023, in the case of Floyd v. Commissioner shows the almost Pavlovian need to continue dismissing these cases for lack of jurisdiction when filed late despite the Supreme Court’s decision a year ago in Boechler v. Commissioner, 142 S. Ct. 1493 (2022).  The order was immediately rescinded by a second order also issued on May 15, 2023, indicating that someone in the Court is watching and paying attention to Supreme Court decisions.  Still, the two orders provide an interesting sequence and a basis for discussing the benefit to the Court of the Boechler decision, and, I hope, the benefit of the reversal of the Court’s Hallmark decision regarding deficiency cases in the coming months or years.


The Floyds filed their CDP petition late.  The notice of determination in their case was dated February 4, 2022.  The IRS has a receipt for certified mailing on that date.  The postal records show the notice was delivered on February 10, 2022.  The 30-day period for filing a petition expired on March 7, 2022, after an extension caused by IRC 7503 because the 30th day fell on the weekend.  Their petition arrived at the Tax Court on April 1, 2022, showing a postmark date of March 22, 2022.  (Keep in mind that when you mail documents to the Tax Court it takes some time for delivery to occur because of the precautions still in effect caused by the anthrax mailing incident.)

The first order issued by the Tax Court in the Floyds’ case notes the Boecher opinion but then goes on to say:

ORDERED that, on or before June 15, 2023, petitioner shall show cause, in writing, why the Court, on its own motion, should not dismiss this case for lack of jurisdiction on the ground the petition was not timely filed and if petitioner asserts equitable tolling include all applicable facts.

Well, that’s a problem since after Boechler filing late is not a jurisdictional issue.  But for many years the Tax Court has policed late filing of petitions.  On its own motion it dismisses about 12 deficiency cases a month according to the research of Carl Smith.  These dismissals typically occur near a calendar call or when a decision document is submitted.  The Court refuses to sign the decision document in these cases having made its own independent determination that it lacks jurisdiction.  In order to make that determination, it must police each case taking time an effort to insure it has proper jurisdiction of the case.  The Supreme Court mentions these in its regular opinions on jurisdiction as one of the reasons for not finding statutes jurisdictional since doing so wastes the time of the court and the parties.

The Boechler case acts as a time saving device much like the advent of washing machines or vacuum cleaners freeing up the Court’s time for other pursuits.  It no longer needs to police the timeliness of the filing of CDP cases (or whistleblower cases) but can ignore the timing of the filing of the petition unless the IRS timely raises a concern.  If the IRS timely raises a concern about the timeliness of a petition, then the Tax Court will spring into action to determine if the petitioner has a good reason.  Otherwise, the Tax Court is free to focus on the merits of the petitions without worrying about timeliness.

The almost immediate vacatur of the first order in the Floyd case indicates that someone in the Tax Court is paying attention to the time savings benefit of the Boechler decision but old habits die hard.  Seeing a late filed petition and doing nothing must be hard for some of the Tax Court judges.  The adjustment will take time.  The cases of Carroll v. Commissioner and Ahmad v. Commissioner show how the post-Boechler process should work.

This year the Supreme Court has issued three more opinions regarding cases raising the issue of jurisdiction.  You can find these three cases here in the most recent Rule 28(j) letter filed in the case of Culp v. Commissioner pending in the Third Circuit.  As it has done in every case since 2004, the Supreme Court found the statutes at issue in these three cases not to create a jurisdictional barrier to filing.  Like the Tax Court with its 17-0 holdings in Guralnik and Hallmark, other courts also struggle with the “new” thinking of the Supreme Court on jurisdiction.  The first order in the Floyd case reminds us that the struggle does not end with the issuance of a Supreme Court opinion.

The Perils of Electing to Carry Forward a Tax Refund When Filing Bankruptcy

In Miller v. Wylie, No. 21-04012 (Bankr. E.D. Mich. 2023) the debtors elect to carry forward their tax refunds for returns filed shortly before bankruptcy and immediately after filing. Although the analysis for the pre- and post-bankruptcy elections turns out differently, the post-bankruptcy election causes the loss of their bankruptcy discharge under BC 727(b)(2)(B).  I have seen occasional cases with this issue over the past few decades but have not written about it previously.  The timing of bankruptcy filing versus return filing and the ability to elect on a return to carry a refund forward has tempted debtors to try this technique for preserving an asset that their creditors deserve.  The existence of both pre- and post-bankruptcy elections in this case provides a detailed look at the considerations undertaken by a bankruptcy court when debtors make this type of election.


The Wylies filed a joint chapter 7 petition on August 27, 2020.  To reach the decision in this case the bankruptcy court held a four-day trial – Wow.  The refund issue relates to both state (Michigan) and federal tax refunds.  I will focus on the federal refunds.

Like many other debtors the Wylie’s filed their tax returns late.  Unlike most debtors, they filed seeking a substantial refund rather than posting more debt.  Their 2018 return was filed almost one year late on March 31, 2020, just five months prior to the filing of their bankruptcy petition.  The return claimed a refund of $21,317.00 and their state return filed at the same time claimed a similar sized refund.  They elected to have the overpayments reflected on these returns applied to their 2019 income tax liabilities as estimated taxes.

There is nothing wrong or underhanded about making such an election as a general matter which is why the Internal Revenue Code permits such an election.  Because the returns were filed with five months of the filing of the bankruptcy petition, the trustee alleges that the election amounted to a transfer which concealed their property with the intent to hinder, delay or defraud a creditor within the meaning of BC 727(a)(2)(A).

The Wylie’s filed their 2019 returns on September 15, 2020, almost immediately after filing their bankruptcy petition.  Note that even though the return was filed after the bankruptcy petition the liability/overpayment for 2019 taxes was a prepetition liability or overpayment because the 2019 tax year ended on December 31, 2019, which date occurred prior to the filing of the bankruptcy petition.

The federal tax overpayment for 2019 on their return was $20,798.00 essentially resulting from the 2018 overpayment election with a similar result for their Michigan taxes resulting in over $40,000 in tax overpayments for 2019.  What did the Wylie’s do with this $40,000?  They elected to apply it to their 2020 tax liability.  The trustee alleges that this election sought to transfer and conceal property of the estate with the intent to hinder, delay, or defraud the trustee within the meaning of BC 727(a)(2)(B).  Because this election occurred after the filing of the bankruptcy petition it triggered a slightly different code section and it creates significantly more problems for the Wylies.

The court next turns to what the Wylies reported on their bankruptcy schedules.  Debtors who file bankruptcy must file extensive schedules disclosing their assets and do so under penalties of perjury.  The Wylies made at least two statements about their tax refunds which troubled the trustee whose job involves collecting all of the available assets for the benefit of the creditors.  First, the Wylies said the value of tax refunds owed to them was unknown.  More troubling they said:

Payment of $13,000 total, $10,000 to IRS and $3,000 to state of Michigan on October 2, 2019, towards estimated income tax liability. 2019 returns have not been filed. Payment amount was estimated to equal the tax liability.

Note the omission of information regarding the election to carry forward their 2018 overpayment.

The bankruptcy court notes the burden of proof here regarding the statute violation rests with the trustee.  It then goes over the elements the trustee must prove and the case law surrounding those elements.  Look to the case for a detailed discussion.

BC 727(a)(2)A) Discharge Denial Request

With respect to the pre-petition election to carry forward their 2018 overpayments the court found the election to be a transfer that concealed their property.  The trustee cited to several of the cases I had read over the past decades in which debtors tried to conceal tax refunds using essentially the same technique as the Wylies:

Case law on this subject, cited by the Trustee, supports the Court’s conclusion that the Debtors made a “transfer,” and the Debtors have cited no case law to the contrary. See United States v. Sims (In re Feiler), 218 F.3d 948, 955, 956 (9th Cir. 2000) (bankruptcy debtors’ pre-petition tax election to carry forward net operating loss (“NOL”) to offset future income, and to waive NOL carryback and resulting tax refund, was a “transfer” of a property interest to the IRS); Gibson v. United States (In re Russell), 927 F.2d 413, 418 (8th Cir. 1991) (same, regarding bankruptcy debtor’s post-petition NOL election); Kapila v. United States (In re Taylor), 386 B.R. 361, 369 (Bankr. S.D. Fla. 2008) (same, regarding bankruptcy debtor’s pre-petition NOL election).

The court decided, however, that the pre-bankruptcy election did not meet the intent element of the statute because the trustee could not prove that the’ Wylies election, made five months prior to bankruptcy, sought to hinder, delay, or defraud a future chapter 7 trustee in a future bankruptcy case.  The court viewed this election as a preference of the IRS over the Wylies other creditors.  This type of preference could cause the funds transferred with a period prior to bankruptcy to be clawed back into the estate but would not rise to the level of denying a discharge.  The court detailed at this point the severe health and financial problems facing Jason Wylie.

The court detailed the various businesses that Jason Wylie ran, his financial and health situation leading up to the bankruptcy, the timing of the hiring of the bankruptcy attorney, the reason for the delay in filing the 2018 return.  Four days of testimony would have flushed out these details which provide crucial background for the court’s decision on discharge.  Denying a discharge is a severe remedy the bankruptcy court would not take without care.

BC 727(a)(4)(A) Discharge Denial Request

The trustee sought to deny the discharge because of the false statements on the bankruptcy schedules.  The court agrees the statements in the schedules were false but finds that the trustee did not prove the Wylies made these false statements fraudulently.  So, as with BC 727(a)(2)(A) discharge denial request, the court turns away the trustee’s attempt to deny the discharge on this ground.  One of the deciding factors for the court was that the Wylies provided their 2018 return to the trustee before or shortly after the filing of the petition and their 2019 return shortly after filing it.  Because they were providing accurate information about the carry forward election at approximately the same time, the court determined that they did not intend to deceive the trustee with the false statements in the schedules.

BC 727(a)(2)(B) Discharge Denial Request

Here, the Wylies lose their discharge.  The bankruptcy petition had already been filed.  The 2019 refunds were clearly property of the estate.  The court finds the carry forward election sought to transfer property of the estate with the intent to hinder, delay or defraud the trustee.  By making the election the Wylies necessarily delayed the trustee since they could have received the refunds from the IRS promptly (a relative term during the pandemic) instead of forcing the trustee to unwind their election causing additional time and expense.  (Under the facts here and probably because of the pandemic, the court finds that the election did not actually hinder or delay the trustee in obtaining the refunds but that is not controlling since they intended to do so.)

Jason Wylie and Leah Wylie both admitted in their trial testimony that the purpose of making their 2019 Tax Refund Transfers was the same kind of purpose they had when they made their 2018 tax refund elections — to try to make sure that their 2020 taxes would be paid.89 As the Court has discussed in Part III.C.1.b of this Opinion, this purpose is essentially a purpose to prefer the Debtors’ two taxing authority creditors (the Internal Revenue Service and the State of Michigan) over their other creditors. That is, the Debtors wanted to insure that their taxing authority creditors were paid in full, for 2020 taxes, in preference to their other creditors, many or most of which could not be paid in full.

In the post-petition context, the Debtors making a transfer of estate property with this purpose is wholly inconsistent with the duties of the Chapter 7 Trustee. This means that in substance, the Debtors had, at a minimum, an intent to hinder the Trustee. In the Debtors’ Chapter 7 bankruptcy case, the Chapter 7 Trustee would not and could not give the Debtors’ intended preferential treatment to these taxing authority creditors for 2020 taxes.

So, the debtors lose their discharge and the refunds come into the estate to pay creditors which could include the IRS depending on the various priorities of the creditors.  The Wylies, unlike debtors in many of the previous cases I have read with this issue, do not appear to have the sneaky intent to use the carry forward to obtain the refund for themselves in a future year filing but rather appear genuinely desirous of making sure they covered their taxes.  While their intentions are more noble than others using this technique to keep property out of the estate, the trustee is right to pursue the refunds for the benefit of all creditors in order that the priority scheme of the bankruptcy code is preserved.  The bankruptcy court struggled with the decision to deny the discharge because of the intent issue.

Latest Round of Litigation in Mann Construction Another Defeat For The Government

In partnership with the American Bar Association Section of Taxation, Tax Analysts has funded a two-year fellowship that offers practicing tax attorneys the opportunity to work in public interest tax law with a public interest nonprofit organization or government entity (the sponsoring organization).The ABA Tax Section is hosting an information session about the 2023-2025 Tax Analyst Fellowship on May 25 from 12 to 1 ET. The fellowship is a great opportunity for practitioners to perform meaningful work in a supportive environment.

Register here for the May 25 information session.

In the latest round of Mann Construction v IRS a district court in Michigan denied the government’s motion to issue a stay of an earlier order that required the IRS  to set aside a Notice that identified transactions as listing transactions.

We have discussed Mann Construction numerous times. For a quick refresher, the case involves a taxpayer’s successful refund litigation that challenged the IRS’s use of a Notice to identify certain employee-benefit plans featuring cash-value life insurance policies as listed transactions. The Notice triggered penalties for failing to report those transactions. Mann Construction had set up such a plan, failed to report it, and the IRS imposed penalties. Mann Construction paid the penalties and filed a refund claim and suit alleging in part that the IRS failed to comply with the notice and comment provisions of the APA. After losing initially at the district court, the Sixth Circuit held that the Notice implicated a legislative rule that required notice and comment. In addition, the Sixth Circuit held that Congress did not expressly exclude the Notice from the APA’s notice-and-comment requirements.

After the Sixth Circuit opinion, on remand Mann Construction filed a motion with the district court asking that the court set aside the Notice, which the district court granted. The government filed a motion asking that the district court stay the set-aside order pending appeal.


A key issue in this latest challenge relates to the effect that one federal court’s stay order has on other jurisdictions. This is a hot issue in administrative law generally, and one that is getting considerable attention in non tax cases. (For more, see our discussion in CIC Services: Now that AIA Issue Resolved, On to Some Meaty Administrative Law Issues).

When considering a motion for a stay pending appeal such as the one that the government raised in this case, courts must apply Federal Rule of Civil Procedure Rule 62, which requires that courts balance four factors: 

  • (1)  the likelihood that the party seeking the stay will prevail on the merits on appeal; 
  • (2) the likelihood of irreparable harm to the moving party absent a stay; 
  • (3)  the prospect that others will be harmed if the court grants the stay; and 
  • (4)  the public interest in granting the stay.

In discussing the first factor, the likelihood of success, the government argued that it favored a stay, because the meaning of “set aside” is “an unsettled legal issue,”  but the court pushed back noting that uncertainty did not equate to likelihood of success.

And, adding some nuance, the court stated that perhaps the government was suggesting that the district court could not bind other circuits with the effect of its order. The court also disagreed that this amounted to the government proving likelihood of success, especially in the Sixth Circuit:

A thoughtless glance might favor that view, but a steady eye sees that this argument is not one to be made to the Sixth Circuit, as it is not for one circuit court to decide the controlling effect of a court order in any other circuit. This is the argument the Government may make in every other circuit where it hopes to enforce the Notice. But making that argument to the Sixth Circuit will not change the conclusion it already reached: that IRS Notice 2007-83 must be set aside.  (emphasis in original)

The district court acknowledged the unresolved academic debate as to the nature of the relief that a court can grant when it finds that the IRS (or another agency) has failed to comply with the procedural requirements under the APA.  But that did not amount to finding that the merits leaned towards a stay:

Admittedly, there is an unresolved academic debate about how to reconcile the APA’s edict to district courts with the principle of stare decisis .What use is a district court’s order that sets aside an agency action in one circuit yet controls no other circuit? Despite the palpability of that question, its answer must come from Congress or, presumably, the Supreme Court. Until that time, courts must continue to resolve APA challenges as Congress directed: by setting aside or vacating unlawful agency action. Indeed, as this Court previously noted “if an agency action violates the APA, ‘then the court should invalidate the challenged action.’” 

As to the likelihood of irreparable harm to the Government absent a stay, the court noted that the government was litigating the issue in other circuits, suggesting that the government did not find itself limited or materially impacted. The government also asserted that the public had an interest in granting a stay given the IRS’s enforcement efforts, but the court emphasized that the public also had a strong interest in agencies abiding by the laws that govern their existence and operations. Given that the Sixth Circuit found that the IRS overstepped its authority in issuing the Notice without notice and comment, it held that the public interest “disfavors” a stay.


While the court did find that there was no possibility of harming Mann Construction if it ordered a stay, that alone was not enough to carry the day for the government. Case over (for now).

There still is considerable uncertainty surrounding what a court can do when an agency violates a procedural APA mandate. The contours between a court issuing a vacatur and a nationwide injunction are not precisely clear, at least to me. The district court earlier distinguished between an injunction and vacatur, noting that an “injunction  ‘operates on the enjoined officials’ to block them from enforcing a regulation, while a vacatur of a regulation ‘unwinds the challenged agency action’ altogether.”

Administrative law scholars continue to debate a court’s power to fashion a remedy when a court finds agency rules unlawful. See, for example, Professor Ronald Levin’s article from earlier this spring, Vacatur, Nationwide Injunctions, and the Evolving APA, where he pushes back on the government and some scholars who have argued that the courts do not have power to vacate a rule as whole. In the meantime, the IRS is free to continue the fight over this Notice and similar ones in other circuits and perhaps all the way to Supreme Court. It seems unlikely that a dysfunctional Congress would take up this issue, but it probably should, as well as take a fresh look at challenges to tax guidance more generally.

The D.C. Circuit Strikes Back: The Court Affirms Its 2014 Holding That The Tax Court Is In The Executive Branch

We welcome back guest blogger, Ben Chanenson, who writes again on the location of the Tax Court within our system of government. As I mentioned when he wrote his first guest post in March, Ben has his hand in almost every blog post. He is my wonderful research assistant and has almost finished his first year at the University of Chicago Law School. Keith

As the great Yogi Berra once said, “it’s tough to make predictions, especially about the future.” Perhaps a qualifier should be added to this “Yogi-ism”: except on Procedurally Taxing. Eight years ago, Professor Bryan Camp predicted that the congressional amendment to 26 U.S.C § 7441 clarifying that the “Tax Court is not an agency of, and shall be independent of, the executive branch of the Government” would not change anything. This month, Professor Camp’s prediction was confirmed in Crim v. Comm’r of Internal Revenue, No. 21-1260 (D.C. Cir. May 2, 2023).


There were two issues in Crim. First, whether the “presidential power to remove Tax Court judges, 26 U.S.C. § 7443(f), violates the separation of powers.” Second, whether “assessment of Section 6700 penalties [are] time-barred by 26 U.S.C. § 6501(a) or by 28 U.S.C. § 2462.” Judge Rogers, writing for herself and Judge Wilkins, held that the answer to both questions is no. In his dissent, Judge Walker argued that the answers should have been no and yes, respectively.

Separation of Powers

Put simply, Crim argued that the President’s power to remove Tax Court judges constitutes impermissible interbranch removal because the Tax Court is not in the executive branch.

The Tax Court’s location has been a subject of debate and we have discussed the debate previously. On one side is the D.C. Circuit, which held in Kuretski v. Commissioner, 755 F.3d 929 (D.C. Cir. 2014) that the Tax Court is an independent executive branch agency. On the other side are Congress and the Tax Court, who both believe that the Tax Court is not in the executive branch but decline to say what branch the court calls home. In Crim, the D.C. Circuit sided with the D.C. Circuit.

Of course, this result is unsurprising given that Kuretski is binding precedent in the D.C. Circuit. Like its sister circuits, the D.C. Circuit follows the law of the circuit doctrine and will not overturn its precedent outside of an en banc proceeding. See Davis v. Peerless Ins. Co., 255 F.2d 534, 536 (D.C. Cir. 1958) (“This division of the court is not free to overrule so recent a decision as that in the Barnard case, for only by action of the entire court, sitting en banc, will such a step be taken.”)

The majority’s analysis of the separation of powers issue is only two paragraphs and does not engage with the reasoning in Battat v. Commissioner, 148 T.C. 32 (2017). After rehashing Kuretski, Judge Rodgers writes:

In 2015, Congress amended Section 7441 to provide that “[t]he Tax Court is not an agency of[] and shall be independent of, the executive branch of the Government.” Consolidated Appropriations Act, Pub. L. No. 114-113, § 441, 129 Stat. 2242, 3126 (2015). Of course, the Supreme Court has cautioned that “congressional pronouncements are not dispositive” of the status of a “governmental entity for purposes of separation of powers analysis under the Constitution.” Dep’t of Transp. v. Ass’n of Am. R.R., 575 U.S. 43, 51 (2015). Here Congress sought only to “ensure that there is no appearance of institutional bias” when the Tax Court adjudicates disputes between the IRS and taxpayers. S. Rep. No. 114-14, at 10. Crim has not demonstrated that congressional action has undermined the separation of powers analysis adopted in Kuretski.

In his dissent, Judge Walker devotes four paragraphs to the issue and concludes that the Tax Court is in the executive branch. In order to change that reality, Judge Walker writes that Congress “must do more than simply tell the judiciary that the Tax Court is outside the executive branch.” Instead, Congress must “alter the court’s substantive features by amending, for instance, the powers it exercises and who controls it.” Finally, Judge Walker notes that he expresses “no opinion about whether tax judges’ removal protection is constitutional.”

Statute of Limitations

The majority “join[s] the Second, Fifth, and Eighth Circuits in holding that Section 6501(a) is inapplicable to assessment of Section 6700 penalties” and concludes that “the statute of limitations is triggered only when a ‘return [i]s filed.’” The majority explains that:

Section 6700 penalties are assessed against individuals who represent, with reason to know such representation is false, that there will be a tax benefit for participating in or purchasing an interest in an arrangement the individual assisted in organizing. 26 U.S.C. § 6700(a). The conduct penalizable “do[es] not pertain to any particular tax return or tax year.” Sage, 908 F.2d at 24. Instead liability turns on the promoter’s activities or gross income derived by the promoter, not on whether a promoter’s client decides to claim such benefit on a tax return. See id. Were Section 6501(a) applicable to Section 6700 penalties, the limitations period on assessment would begin to run in view of factors unrelated to the source and scope of penalty liability.

The dissent responds:

True, the limitations clock for tax assessments starts to run “after [a tax] return [is] filed,” and tax-shelter-promotion penalties may be levied even if no tax return is ever filed. 26 U.S.C. § 6501(a). But that proves only that in some tax-shelter-promotion penalty cases, the statute of limitations never starts running because no return ever triggers it. It does not prove that the statute of limitations does not apply at all. For example, a statute of limitations applies to fraud, but it is not triggered “until after . . . discover[y] . . . [of] the alleged deception.” Holmberg v. Armbrecht, 327 U.S. 392, 397 (1946).

For the IRS’s theory to persuade, it would have to be true that no tax return could ever trigger the statute of limitations for assessments in a tax-shelter-promotion case. But that is not self-evident. Why couldn’t the statute of limitations be triggered by a return filed by a tax shelter’s client? Oral Arg. Tr. 9-10 (giving hypotheticals). Other statutes of limitations in the tax code are triggered when returns are filed by someone other than the penalized person. See, e.g., 26 U.S.C. § 6696 (setting out the statute of limitations for tax-preparer penalties).

Instead of determining that “no return can ever trigger § 6501(a)’s statute of limitations in a tax-shelter-promotion case,” Judge Walker “would let the Tax Court determine, on a case-by-case basis, whether a tax return has triggered the limitations clock.”


Ultimately, Crim v. Comm’r of Internal Revenue did not break any new ground. Nevertheless, the majority and dissent’s analysis of the separation of powers issue raises new questions.  The majority concluded that “Congress sought only to ‘ensure that there is no appearance of institutional bias’ when the Tax Court adjudicates disputes between the IRS and taxpayers.” But was that really Congress’ objective? I doubt Congress thinks that the average taxpayer reads 26 U.S.C § 7441, but admittedly the average taxpayer probably also does not read about Kuretski.

Moreover, the dissent concluded that to change the Tax Court’s location, Congress has to “alter the court’s substantive features by amending, for instance, the powers it exercises and who controls it.” This seems like a daunting task. Would any substantive alternations be sufficient for the judiciary and consistent with Congress’ vision for the Tax Court?

Inspired by Professor Camp’s accurate prediction, I predict this will not be the end of the debate over the proper location of the Tax Court.

Uncertainty Over Bankruptcy Court Jurisdiction in Innocent Spouse Cases Seeking Equitable Relief

In re Geary is the latest in a line of cases where district and bankruptcy courts struggle to determine whether they have jurisdiction over innocent spouse cases. Geary, a bankruptcy case, concludes that bankruptcy courts do not have jurisdiction to determine whether a taxpayer qualifies for innocent spouse relief if seeking relief under § 6015(f). Presumably, this court would have determined it had jurisdiction if the debtor had sought relief under § 6015(b) or (c).  This post discusses the case and the issues it presents.


The modern innocent spouse provisions have been in the Code for a few decades. From the start, there were questions about how and whether a court could review IRS determinations regarding requests for relief. Congress has stepped in on a few occasions. For example, it clarified that requests for equitable relief are subject to Tax Court review. Additionally, in the Taxpayer First Act (TFA) Congress added rules on both the evidence that courts can consider and the standard of review that courts would employ.

As Nina recently discussed in Thomas v. Commissioner: Some clarity on “newly discovered evidence” under IRC 6015(e)(7) that comes with a reality check, the Tax Court has attempted to provide some certainty on the TFA scope of review changes. As Nina noted, that attempt may leave some taxpayers out in the cold, and a legislative fix is likely needed to allow for the Tax Court to consider evidence that may be relevant to a determination.

Another area that needs a legislative fix is clarifying when courts other than the Tax Court have jurisdiction over these cases. Keith recently discussed one such issue in Jurisdiction of District Court in Innocent Spouse Case, where a federal district court found that it had jurisdiction to adjudicate a claim for equitable relief in a refund proceeding despite an argument regarding § 6015(f) essentially identical to the argument advanced by the government in the Geary case.  I will not repeat all of Keith’s excellent post but suffice it to say that district courts have struggled to determine if they have jurisdiction to hear these cases in refund cases and collection suits brought by the government since 1998.  The argument advanced in Geary and in the refund suit discussed in the above link appears to be a refinement of the government’s position.  We have noted before that the Department of Justice has taken internally inconsistent position on the issue of the jurisdiction of district courts to hear refund cases based upon innocent spouse relief.

Similarly, bankruptcy courts have struggled to determine if Bankruptcy Code § 505 provides jurisdiction for innocent spouse cases. BC § 505(a)(1) provides that a bankruptcy court “may determine the amount or legality of any tax, any fine or penalty relating to a tax, or any addition to tax, whether or not previously assessed, whether or not paid, and whether or not contested before and adjudicated by a judicial or administrative tribunal of competent jurisdiction.” 

In concluding that BC § 505(a)(1) did not grant it jurisdiction to consider a request for equitable relief, the Geary opinion looked to Section 6015(f). The language in (f) provides the following:

Under procedures prescribed by the Secretary [of the Treasury], if—(A) taking into account all the facts and circumstances, it is inequitable to hold the individual liable for any unpaid tax or any deficiency (or any portion of either), and (B) relief is not available to such individual under subsection (b) or (c), the Secretary may relieve such individual of such liability  (emphasis in opinion).

From there, Geary states that “Congress granted only the Secretary of the Treasury the equitable power to grant innocent spouse relief under subsection (f). The statute is unambiguous in this regard, suggesting an end to the inquiry. (footnote omitted but citing some cases which essentially ended the inquiry there).

Geary acknowledges that other bankruptcy courts have gone further and found jurisdiction by looking to IRC 6015(e)(1)(A), which provides that “in addition to any other remedy provided by law, the individual may petition the Tax Court (and the Tax Court shall have jurisdiction) to determine the appropriate relief available to the individual under this section.” (my emphasis)

From there, Geary notes that “[e]xcept where a refund suit is commenced in the federal district court, most courts agree that this provision grants the Tax Court exclusive jurisdiction to hear appeals under subsection (f).”

But, as Keith’s post above notes, not all courts have agreed with this limiting language, especially in light of 6015(e)(1)(A)’s reference that the path to Tax Court review is “in addition to any other remedy provided by law.” And, as Geary states, in finding that they had jurisdiction some bankruptcy courts, including In re Pendergraft, have concluded that BC § 505 is another remedy provided by law and is aligned with the broad purpose of the bankruptcy law in providing for avoiding delays in administering a bankruptcy estate.

Yet, Geary declines to go down that path:

In re Pendergraft concludes that “innocent spouse” relief under I.R.C. § 6015(f) fits neatly within the bankruptcy court’s jurisdiction “to determine the legality of a tax,” but this Court is unconvinced. The relief In re Pendergraft envisioned involves: (1) reviewing the Secretary’s denial of relief; or (2) determining “appropriate relief” in the absence of a timely decision. Either way, the Debtor is not arguing that the taxes are illegal, just that they should be waived for equitable reasons. In fact, equitable relief is usually distinguished from legal remedies. And she is not asking the Court to determine the amount of the tax. The Service already did that, which is her problem. (notes omitted)

Despite Geary finding that it had no jurisdiction, the court candidly stated that it was “unsure what “other remedy provided by law” was contemplated when Congress enacted I.R.C. § 6015(e)(1)(A).”

That uncertainty was insufficient to find that it had jurisdiction:

Still, the structure of subsection (e) does not point to section 505. First, it seems peculiar for Congress to carefully limit federal jurisdiction over subsection (f) only to imply bankruptcy jurisdiction through a vague prefatory clause. After all, I.R.C. § 6015(e)(6) explicitly addresses the impact of bankruptcy cases on the time periods for seeking relief, so one might expect Congress to reference section 505 more directly. It is also telling that Congress acknowledged when a federal district court could acquire jurisdiction over “innocent spouse” relief and expressly curbed the jurisdiction of the Tax Court in those situations. Finally, In re Pendergraft perceived an ambiguity in I.R.C. § 6015(e)(1)(A) because the statutory timing procedures only apply to the Tax Court, not to “other remed[ies] provided by law.” In this Court’s view, that ambiguity reveals that section 505 is not really a “[an]other remedy” but a means to exercise the Tax Court’s jurisdiction under I.R.C. § 6015(e)(1)(A). (notes omitted)


It is suboptimal tax administration when courts differ as to whether they have jurisdiction to hear requests for equitable relief. The innocent spouse provisions are remedial. It is hard for me to square Congress’ statement that Tax Court review is in addition to other remedies provided by law with Geary’s view that it does not have jurisdiction. When Congress gets around to fixing the Thomas problem that Nina highlighted, it should also clarify that district courts in collection, refund and bankruptcy matters also have jurisdiction to consider requests for relief from joint and several liability.

Serious Warnings for Frivolous Positions

In conjunction with the University of San Diego School of Law, RJS Law is also hosting the 8th Annual USD School of Law-RJS Law Tax Controversy Institute at the University of San Diego School of Law Campus in San Diego, California on July 28, 2023. You may find out more about the institute here

Today’s guest blogger is Joseph Cole, LL.M.  He is an Senior Associate Attorney at RJS Law in San Diego, California.  His practice includes federal and state tax controversy.  He discusses frivolous position penalties that Tax Court may impose under IRC 6673.  We have had a number of posts discussing the 6673 penalty including many of our designated order posts.  Joseph talks about the warnings issued by the Court prior to the imposition of this penalty.  Multiple warnings have long been part of this landscape even though not dictated by the IRC.  A few years ago, I looked at the frequency of the imposition of the 6673 penalty and you can find that article here.  Keith

The Tax Court may impose penalties under IRC §6673 of up to $25,000 for positions that are “frivolous and groundless.”  IRS Notice 2010-33 lists many of the positions that the Tax Court deems frivolous.  These positions include arguments such as the Tax Code being unconstitutional or participation in the tax system being voluntary.  Anybody who regularly reads Tax Court cases will notice when frivolous position issues come across the Tax Court (and these issues are surprisingly common). In the opinions I have read, the Tax Court gives the taxpayer a warning before issuing a §6673 penalty.  This blog post will address why the Tax Court issues a warning in these cases and whether a warning is a substantive legal right.


The frivolous position penalty statute gives the Tax Court discretion as to whether it will impose a §6673 penalty.  The statute reads the Tax Court “may require the taxpayer to pay to the United States a penalty.” (Emphasis added.)  The statute gives Tax Court judges a cudgel they may use to impose order and decorum in their court room and to discourage litigants from wasting the court’s time.  Other penalty statutes in the Internal Revenue Code have mandatory language.  For example, the late filing penalty statute (IRC §6651(a)(1)) states penalties “shall be added” (emphasis added) when a taxpayer violates the statutory provisions.  The frivolous tax return penalty statute (IRC §6702) states a taxpayer “shall pay a penalty”(emphasis added) if a taxpayer files a frivolous tax return. 

As a matter of practice, the Tax Court gives petitioners a warning before issuing a §6673 penalty.  A couple recent Tax Court cases illustrate this practice.  In Luniw v. Comm’r, TC Memo 2023-49, the Taxpayer is let off with a warning when the court discusses §6673 penalties because the Taxpayer had not made similar frivolous claims in previous cases.  In Luniw, the Service assessed §6702 frivolous return penalties against the taxpayer.  The Tax Court does not discuss whether the petitioner received a warning regarding §6702 frivolous return penalties; however, the lack of a discussion regarding the §6702 frivolous return penalties makes sense because the Court did not have jurisdiction over those assessable penalties.  (For a recent example of a taxpayer that did not heed the Tax Court’s warnings regarding the 6673 penalty, see  Golditch v. Comm’r, TC Memo. 2022-26.)

In Englert v. Comm’r, TC Memo 2023-38 the taxpayer had a deficiency in income taxes but also faced  §6702 frivolous return penalties assessed prior to the deficiency proceeding.  He made frivolous arguments before the Tax Court in addition to the frivolous positions he had taken before the IRS.  The Tax Court did not address the §6702 frivolous argument penalties because it lacked deficiency jurisdiction over these assessable penalties. The Englert court then imposed a $1,000 penalty under §6673 for post-trial submissions containing frivolous arguments.  The Tax Court did not address the §6702 frivolous return penalties because it lacked deficiency jurisdiction.  Therefore, the Court does not address whether the IRS gave a warning to the taxpayer before the §6702 frivolous return assessment. 

IRM § provides that Taxpayers should be issued a warning letter before a §6702 assessment giving the taxpayers 30 days to correct the submission. The statute does not require this warning which the IRS has imposed upon itself.  No cases have addressed whether the failure to issue this warning would provide a basis for setting aside this penalty.

Similarly, the question arises as to whether there is a substantive right to a judicial warning before a §6673 frivolous position assessment.  While the Tax Court has no equivalent to the IRM, Tax Court judges have issued warnings in numerous cases making the use of the warning something akin to the IRS administrative requirement in the penalty it can impose for similar taxpayer behavior. It is not clear whether these warnings are a mere courtesy, a prophylactic measure, or whether the number and consistency of the opinions issuing warnings prior to the imposition of the frivolous position penalty have amounted to Stare Decisis.  While a warning from the bench may not be a substantive right for taxpayer, a warning does make a §6673 assessment virtually bullet-proof. 

Appeals courts review the Tax Court’s §6673 penalty determination for abuse of discretion.  In Wolf v. Comm’r, 4 F.3d. 709 (9th Cir. 1993) the Ninth Circuit determined that the Tax Court did not abuse its discretion when it put the taxpayer on notice that the taxpayer may face sanctions and the taxpayer proceeds with frivolous despite the court’s warning.   The Wolf opinion demonstrates the benefit of issuing a warning.  Even without a warning from the bench, if a taxpayer asserts frivolous arguments that in the past have resulted in §6673 penalties on other taxpayers, it would be difficult for a taxpayer that made patently frivolous arguments to argue that the Tax Court abused its discretion by issuing §6673 penalties.

Frivolous positions at the Tax Court and the frivolous position penalty may unfortunately become more of an issue in the years to come.  People are being exposed to more disinformation and charlatanism through social media.  Flat earth theories (both literal and figurative) are receiving a surprising level of popular acceptance today.  As a recent Procedurally Taxing post pointed out, many taxpayers are relying on social media for tax advice.  The Tax Law equivalents of flat earth theories are finding increasing levels of popularity The frivolous position jurisprudence and statutes will hopefully evolve to rise to the challenge of this new age of disinformation.