A recent order issued by Judge Nega in the case of Low v. Commissioner points to the perils of submitting a case fully stipulated under Tax Court Rule 122. Rule 122 allows the parties in a Tax Court case to fully stipulate a case and avoid the messy issues that can arise at trial. When done correctly, fully stipulating a case provides a simple and easy method for submitting a case to the Tax Court. When done poorly, a party can learn to its detriment that it has made an incomplete stipulation leading to an avoidable loss.
A typical case in which the parties use Rule 122 involves a case in which the parties dispute one or more discreet legal principles but have no disagreement on the facts. Of course, it is possible to go to trial and neglect to put on necessary facts, but submitting a case fully stipulated may make it easier to overlook necessary facts. The Low case involves a Collection Due Process (CDP) determination. Here, respondent overlooked including the administrative record in making the Rule 122 submission and the court finds that oversight troublesome.
I submitted a case fully stipulated once when working for Chief Counsel, IRS and the case included the negligence penalty. The case arose before 1998 and the change in the burden of persuasion on penalty issues. Petitioner’s counsel did not request that we stipulate to any facts that would support a basis for the court to find reasonable cause or another basis for striking the penalty. Several weeks after the case was submitted fully stipulated, he realized that he needed more facts in order to give the court a basis for finding in his favor. The additional facts he wanted to stipulate were, after some discussion and narrowing, facts with which I agreed. We submitted a supplemental stipulation. In the Low case, however, the parties never realized that their stipulated facts did not fully present the issue. This caused a problem for Judge Nega. He resolved it by remanding the case which he could do because it was a Collection Due Process (CDP) case. I do not recall a previous case which the Court remanded due to an incomplete stipulation. So, I thought I would write about this non-precedential order.
read more...As mentioned above, the Low case involves CDP. CDP cases do not naturally lend themselves to submission under Rule 122 and I do not remember seeing a fully stipulated CDP case previously much less one that was remanded. The fact that CDP cases do not regularly use Rule 122 does not mean that its use here was inappropriate. The factual nature of CDP cases usually involves a petitioner who wants or needs to testify – assuming they get past the now routine motion for summary judgment. A CDP case contesting the merits of the liability could easily qualify for Rule 122 treatment.
The failure to submit the administrative record as part of the Rule 122 submission leaves the judge less than satisfied with the record he must work with to make a decision. He states:
In the notice of determination, the AO provides a perfunctory statement asserting she verified respondent’s compliance with the “requirements of any applicable law or administrative procedure” by reviewing petitioner’s account transcripts. Petitioner’s transcripts are not included in the record before us. In fact, we were not provided any of the documents that ordinarily comprise the administrative record, that corroborate and support an appeals officer’s findings and determinations. See IRM pt. 35.6.2.18.2 (Sept. 18, 2012)(when litigating a CDP action respondent ought to provide the Court with a substantive and authenticated copy of the administrative record as described in IRM pt. 35.3.23.8.4 (July 25, 2012)(e.g.: Forms 4340, Case Activity Record Prints)). The stipulated record is astonishingly thin, composed of only four exhibits: two letters from petitioner, the levy notice, and the notice of determination. A clear record is necessary for review of any administrative proceeding. Here, the paucity of the record before the Court provides anything but clarity. It is within the Court’s discretion to remand cases to respondent’s Office of Appeals for clarification and supplementation of the administrative record as appropriate. See Wadleigh v. Commissioner, 134 T.C. 280, 299 (2010); Hoyle v. Commissioner, 131 T.C. 197 (2008); see also Gurule v. Commissioner, T.C. Memo. 2015-61 (remand is appropriate when the appeals officer failed to develop an administrative record sufficient for judicial review). Because the administrative record is insufficient, and we are unable to properly evaluate whether the AO abused her discretion, we will remand this case.
The quoted material contained two footnotes. The first footnote addressed the material the IRM suggests should be made part of the record and provides the following:
IRM pt. 35.3.23.8.4 directs respondent’s counsel, when attempting to dispose of a CDP case by means of summary judgment, to provide this Court with supporting declarations and an authenticated copy of the comprehensive administrative record. See also Rule 121(d). It would seem appropriate to expect the same when a case is similarly submitted for disposition without trial under Rule 122.
The second footnote addressed the failure of respondent to discuss the proof issue raised in Chai v. Commissioner regarding the authorization of the penalty asserted by the IRS.
It is clear that the IRS attorney has work to do here. We have addressed in several posts the additional work needed by the IRS in its summary judgment motions under Rule 121 as pointed out by several orders issued by Judge Gustafson. Now, Judge Nega points out the many missing pieces when the IRS seeks instead to use the fully stipulated Rule 122 procedure. The regularity of these orders suggests that Chief Counsel attorneys may need to step back and think more deeply about what they must prove in submitting cases.
The decision in Chai changes the game somewhat but the problems go deeper. Here, the Court allows/orders the parties to resubmit a fully stipulated case. In some ways this is like having a trial and then getting a do over. It does not reflect well on the IRS that it cannot identify the facts necessary to prove its case and that it has submitted a case fully stipulated which falls so far short of the necessary proof.
Rule 122, when used properly, allows the parties to save time and money by not having to go through a trial. When submitting a case fully stipulated, however, you must go through all of the same steps regarding proof that you would do if you had a trial. You must carefully analyze each issue in the case and make sure that you have put in evidence that will support your position on the issue. The failure to do so creates a disaster. Having a Rule 122 case returned as an inadequate submission is not something I remember seeing before. The IRS looks really bad here.
The taxpayer represented himself and made frivolous arguments. The Court admonishes him to stop making such arguments or face a penalty. The Court remands the case to Appeals. I am sure the IRS will do a better job when/if the case comes back to the Court but surprised that it missed the mark so widely in this first attempt.
Dear Professor Fogg:
I follow your blog regularly with great interest. I am writing regarding the Low v CIR tax court order that was briefed under Tax Court Rule 122. Your discussion of Rule 122 motions accurately and perceptively notes the apparent peculiarities of the case. But the apparent oddity makes more sense when you know more about the circumstances and issues involved.
You are correct that the slipshod handling of the stipulations makes R look bad and that R’s counsel apparently dropped the ball, but lack of a cogent administrative record is the least of what the Court and Respondent are concerned about in this case. The remand is a distraction from the real issue and an opportunity for the Honorable Judge Nega to try to intimidate the petitioner in to silence without having to rule on the completely legitimate but officially untouchable issue P raised in his petition and briefs.
In his initial proposal for a Stipulation of Facts the Respondent included “certified” copies of forms 4340 for each of the four years at issue. As you and most readers of your blog know these transcripts are generally the only documents R presents, or needs to present, to meet the “verification” requirements of Sec. 6330(c)(1).
Mr. Low objected to these transcripts in the proposed Stipulation. He objected because the transcripts were dated after the hearing date; because they were certified only to be accurate “reflections” of IRS records without actually being certified to be true and correct; because R laid no foundation for the trustworthiness or accuracy of the computer system that generated them; and finally Mr. Low objected because the transcripts were “certified” by an IRS employee who had no delegated authority to certify anything for the Service. (P Proposed SOF, this version was abandoned.)
In the face of these objections, and P’s agreement to withdraw a number of documents supporting his case, R’s counsel simply dropped the transcripts from his proposed Stipulation. It was puzzling, but Mr. Low didn’t feel it his place to question R’s evidence decisions, and the transcripts weren’t relevant to his petitioned issue anyway, except in so far as they were not verified.
In exchange for R’s withdrawal of the transcripts from the stipulation, Mr. Low withdrew the GAO Annual Audit Reports he was going to offer to impeach the IRS computer records; he withdrew the copies of the tax returns he filed but that R never acknowledged, and still claims Low didn’t file; and he withdrew copies of the Audit Reconsideration requests that he had submitted and that the Service had ignored.
The Court’s problem, however, isn’t that R failed to provide key parts of the administrative record or that that record is unreliable and compromised. The Court’s problem is that Mr. Low in his petition and briefs raised an issue of statutory construction that apparently the Tax Court cannot honestly address without confessing to years of lawless decisions and bias in favor of the Commissioner.
Mr. Low’s CDP petition alleged two errors, only one which concerns us here. Mr. Low alleged as error: “The Commissioner’s Appeals Officer failed to ‘obtain verification from the Secretary that the requirements of any applicable law or administrative procedure have been met.'”
Mr. Low quoted the language of IRC 6330(c)(1) in that statement of error because his entire case is based on the statutory construction of the language of that section.
This issue, however, appears to be among those that may not be mentioned for any reason in Tax Court orders, decisions, and memoranda.
Although you apparently accept without question that Mr. Low raised unnamed frivolous arguments, in the end Mr. Low briefed only two issues, neither of which are in any way frivolous.
First, he argued against the admissibility, for their truth, of the fact statements in the Notice of Determination. He argued that the unsworn statements in the notice, which itself enjoys a dubious hearsay exemption as a “business record,” do not enjoy the same exemption and must be excluded as unsworn (FRE 603) hearsay within hearsay (FRE 805). Whether Mr. Low is correct or not concerning that evidence argument, the court didn’t rule on it, it has nothing to do with tax law, and it is in no way frivolous.
The second issue Mr. Low briefed is the one that makes everyone uncomfortable and apparently compelled the Honorable Judge Nega to run up the “frivolous” flag in an attempt to shut Mr. Low up. The issue was best stated by Mr. Low in his Opening Brief:
“The question on which the petitioner is seeking a ruling from this court is one of statutory construction. Specifically, petitioner is in this court expressly to obtain a ruling on the statutory meaning of the word “verification” where it appears in §6330(c)(1). And even more specifically, for the answer to the question: Can any document, testimony, affidavit, deposition or statement be a “verification” for purposes of the statute and admissibility into the record of this court if it lacks “Confirmation of correctness, truth or authenticity, by affidavit, oath or deposition?” (Black’s, supra) And if the answer is yes, then by what authority would the court admit it? This is strictly a question of law. The court’s decision will apply to every §6330 case.” (Paragraph 12, P’s Opening Brief)
This is the issue the Court will not address or even admit has been raised. For mentioning it the Honorable Judge Nega has threatened to punish Mr. Low under IRC 6673. (The Honorable Judge Nega, of course, identified no specific frivolous argument in his accusation/threat, but the long settled statutory meaning of the word “verification” is the only argument Mr. Low made.)
There is no need for me to explain to you or a readership of bar members and CPAs what a statutory ‘verification’ is. With the number of lawyers in Congress, the chances that Congress didn’t understand what it was saying in the statute are remote.
Nevertheless, instead of requiring R to “obtain verification from the Secretary” that all laws and procedures were followed the Tax Court from day one of RRA98 has misconstrued 6330(c)(1) to lend Appeals Officers authority they do not possess. The Tax Court allows them to personally “verify” that all procedures and laws were followed with unsworn personal statements, and equally unsworn, unreliable, easily manipulated computerized transcripts that are given a presumption of accuracy and correctness that is belied by the government’s own GAO audits for the last 20 years.
Instead of addressing the perfectly legitimate issue of statutory construction Mr. Low raised, as his oath and duty require, the Honorable Judge Nega has decided to bully Mr. Low into silence under the cover of a remand to augment the record.
The Honorable Judge Paris ignored an identical argument recently in Dean v. Cir. She took a different, less vindictive approach, however. Instead of threatening bogus penalties, she simply ignored the issue, refused to rule on the parties’ evidence objections, and refused to make a statement of facts and grounds in her Memorandum Opinion and after two motions to vacate for failure to state facts and grounds. (See T.C. Memo 2017-203; any relevance the memo may have to the issues briefed is entirely imaginary. The Briefs, Memo and post decision pleadings are HERE.)
The Dean case is on appeal in the D.C. Circuit. Dr. Dean has also filed a conditional judicial complaint against the Honorable Judge Paris inquiring of the Honorable Chief Judge as to whether the Honorable Judge Paris is acting on her own in making her evasive, mendacious ruling or whether she is following official Tax Court policy. He is not holding his breath waiting for an answer to that question, which the Honorable Chief Judge has promised “in due course.”
Mr. Low and I would welcome any explanation or discussion by you or the learned readers of your blog as to how, and by what authority, the Tax Court can ignore this foundational question of statutory construction and threaten him with penalties for even asking it. Copies of Mr. Low’s and Respondent’s briefs on this issue are available HERE.
Cordially,
Lysander Venible
859-661-4057
P.S. I had provided links to the relevant documents in my original draft, but they do not appear to have survived pasting into this comment frame. I’ll gladly provide them on request, or supply them in a Word document for a guest post. Thank you for your consideration.
It sounds tax protestor-ish to me, but I’ll play along. Isn’t the real issue here, from a practical standpoint, what the remedy would be if the verification requirement is failed?
A remand is the appropriate remedy. That is how it is handled in a CDP case because the court is reviewing an administrative determination.
Yup. And that’s exactly what Mr. Low got. But do see Marlow, TC Memo 2010-113).
The remand is certainly what Mr. Low got, and I don’t deny that it is his only remedy under the “abuse of discretion” standard. But the remand leaves unaddressed the fundamental statutory construction issue of the meaning of the phrase “obtain verification from the Secretary” where the statute requires it. The remand also allowed the court to avoid a ruling on that issue or on the fact that R conceded it by ignoring it in his Answering Brief.
After Mr. Low’s new hearing he will most certainly not receive anything like a proper ‘verification,’ as that word is defined in Black’s, from the Secretary or a delegate that all laws and procedures were followed. Mr. Low has been threatened with penalties if he pursues the statutory verification. A reliance on Black’s Law Dictionary cannot be construed as “frivolous” nor does it make Mr. Low any kind of tax protester.
The questions Mr. Low is asking are “What does the word “verification” mean in the statute?” and “How can anything less than a “statement of ‘correctness, truth or authenticity by affidavit, oath or deposition’ meet the requirements of the statute and those of the Rules of Evidence for the purposes of Sec. 6330(c)(1)?”
The honorable judges of the Tax Court have been dodging those questions since 1998. A thorough search of available Tax Court opinions since RRA98 would lead one to think the issue has never been raised. But when you go to the trouble of obtaining the pleadings, you can see these questions have been asked and ignored many times.