In The Room Where It Happens, It Doesn’t Always Happen Exactly Right

Today we continue our series highlighting the recent publication of the Pittsburgh Tax Review edition focusing on the Restructuring & Reform Act of 1998 a quarter century after enactment.  Guest bloggers Leila Carney and Chris Rizek wrote one of the articles as well as today’s post.  Both practice with Caplin & Drysdale in Washington, DC.  Leila focuses on tax disputes and tax litigation.  Like me, she has her undergraduate degree from William and Mary.  Chris was a trial attorney in the Tax Division of the Department of Justice early in his career.  His service as Associate Tax Legislative Counsel with the Treasury Department’s Office of Tax Legislative Counsel in the mid to late 1990s provides the background for today’s post and offered me the first opportunity to meet him.  In that meeting, which took place in another of the rooms where it happened, he discussed the 25 legislative proposals that Chris Sterner and I had drafted.  I remember Chris (Rizek) rejected one of the proposals which sought to codify the reach of the federal tax lien to tenancy by the entireties property because he thought it was an issue for the courts to decide.  His rejection of that proposal seemed prescient when the Supreme Court held the federal tax lien reached T by E property a few years later in United States v. Craft, 535 U.S. 274 (2002).  His practice focuses on tax disputes and tax litigation.  He is well known in the tax procedure community and an early guest blogger for PT

This post was originally posted on May 3rd, but has been updated on May 8th to correct a reference in the original post that had identified the jurisdictional parenthetical in Section 6015(e)(1)(A) as originating in Conference; the House had inserted that provision in its earlier proposed legislation.


Keith Fogg’s article in the Pittsburgh Tax Review’s recent issue, The IRS Restructuring and Reform Act [“RRA”] Twenty-Five Years Later,Vol. 20, No. 1 (2022), is entitled “In the Rooms Where it Happened,” and several authors of posts on this blog have likewise discussed how exciting, and even fun, it can be to be involved in the legislative or regulatory decision-making process.  So, since we’re on that subject, I have a story to relate as well.  The very last items resolved in the conference held to reconcile the House and Senate versions of the RRA were the competing provisions for “innocent spouse” reform.  I was in the room(s) where that happened, and here’s how it happened.


A bit of background first.  Under a provision in the Taxpayer Bill of Right II (1996), Congress had required the Treasury to study proposals to amend the statute governing relief from joint and several liability for “innocent spouses.”  That study, which was finished in early 1998, recommended changes in the existing law to broaden the criteria to qualify for relief, but it did not endorse complete “separation of liability,” due to several perceived conceptual difficulties in correctly allocating liability that had been identified.  See Report to the Congress on Joint Liability and Innocent Spouse Issues (U.S. Treasury Dept., February 1998) at 24-29, 53-55, 57.  Buried at the end in a few brief sentences, the Treasury study also recommended that “Congress expand the Tax Court’s jurisdiction to allow it to review any denial (or failure to rule) by the IRS regarding an application for innocent spouse status.”  Id. at 55.

As described in the article Leila Carney and I co-authored for the same Pittsburgh Tax Review, the House version of the taxpayer rights title of RRA consisted primarily of consensus items, mostly improvements to existing provisions in the Internal Revenue Code that were acceptable both to Treasury and the IRS and to members of the House who wanted strong reforms.  The House bill thus included several agreed-upon changes to the existing innocent spouse rules in section 6013, generally making it easier to obtain relief.  The Senate bill, by contrast, included an entirely new elective scheme of separation of liability.  Innocent spouse reform was the last open item in the conference, due in part to Treasury’s opposition to complete separation of liability and to the perceived incompatibility of the two schemes for relief. 

Senator Roth, Chairman of the Senate Finance Committee, and Rep. Archer, Chairman of the House Ways and Means Committee, were also chairing the conference committees for their two houses.  At the conference, staffers from both committees, as well as the Joint Committee on Taxation, the offices of some other principals, and Treasury (including me) were as usual not sitting right at the table with the members but were scattered around in chairs against the walls.  As the conference was finishing successfully, with hardly any controversy or even hard decisions, the two chairmen’s bonhomie increased, and they began cheerfully calling each other by their first names – Bill and Bill.  So, with only one item remaining – the innocent spouse provision – one Bill suggested to the other Bill, “Bill, why don’t we just do both, put the House version and the Senate version together somehow?”  And the other Bill responded that he thought that was “a splendid idea, Bill,” and they promptly agreed they would just do that.  

And then they looked around the room at the staff – who were exchanging nervous glances with each other and even recoiling in horror.  It had taken months to draft the Senate’s separation of liability provision and work out the problems with successive editions, and it still wasn’t perfect; and now the members wanted the staff to put the two versions together, with no real instructions on how to do it.  And the bill was expected to go to the floors of both houses in less than a week!

As usual after a conference, there ensued several long days of furious drafting and revising of the whole bill, with the pen being held by the Legislative Counsel’s office(s), and drafts of the conference provisions being commented on by the various interested staffers on a daily basis.  Not surprisingly there was a lot of discussion of the innocent spouse revisions (especially new section 6015), which had been joined by keeping separation of liability elective but adding a number of restrictions to it.  In particular, I and some other staffers expressed concerns over the provision granting judicial review of appeals from full or partial denials of separation of liability (placed in section 6015(e)),  with the parenthetical, “(and the Tax Court shall have jurisdiction).”  But the drafters left it that way.

The drafters took a similar approach to granting the Tax Court jurisdiction over another brainchild of the RRA, collection due process (“CDP”) determinations, employing much the same parenthetical: “(and the Tax Court shall have jurisdiction with respect to such matter).”  Code §§ 6330(d)(1) (initially 6330(d)(1)(A)).  Et voilà: ever since, a taxpayer may petition the Tax Court no later than 30 days after a final CDP determination and no later than 90 days after a final determination regarding relief from joint liability including innocent spouse status.

These 30- and 90-day deadlines were taken at face value for a long time, being generally understood to carry the weight of jurisdiction—the deadlines each being in the same sentence as the parenthetical granting jurisdiction.  See Code §§ 6330(d)(1), 6015(e)(1)(A).  But I was reminded of this drafting issue while discussing with Ms. Carney a recent CDP case, Boechler, P.C. v. Commissioner, 142 S.Ct. 1493 (2022), in which the Supreme Court opened the door for applying equitable doctrines to entertain untimely petitions in extreme cases.  In Boechler, the Supreme Court put significant weight on the syntax of the jurisdictional grant in section 6330(d)(1) and the additional phrase “with respect to such matter,” which is present in section 6330(d)(1) but not in section 6015(e)(1)(A).  Boechler, 142 S.Ct. at 1498-99.  In holding that the CDP petition deadline is not jurisdictional, but merely procedural and therefore may be equitably tolled, the Supreme Court contrasted the two parentheticals, hinting that the text of section 6015(e)(1)(A) is more clearly jurisdictional and would not allow for equitable tolling.  Id.  

This somewhat surprising holding drew the attention of the National Taxpayer Advocate, whose 2023 legislative recommendations report (the “Purple Book”) offers the critique that interpreting certain deadlines as jurisdictional and others as merely procedural, without a substantive justification, can result in “harsh and unfair results.”  The Purple Book thus recommends that Congress enact an entirely new section that clarifies that court filing deadlines are not jurisdictional.  Id. (Legislative Recommendation #45). 

While such legislation could create its own set of issues, arguably it would at least be in keeping with the impetus behind section 6015, which itself contains an equitable relief provision in section 6015(f).  In fact, the grant of jurisdiction in section 6015(e)(1) spells out that “an individual who requests equitable relief . . . may petition the Tax Court . . . .”  It certainly is odd that a person may be entitled to equitable relief under the substance of section 6015 but could be denied relief because the Tax Court’s jurisdictional grant precludes equitable tolling.  And while I and perhaps some other staffers were not overly enthusiastic about the ad hoc approach to Tax Court jurisdiction taken in the RRA, we all know that Congress’s goal was to expand, not limit, jurisdiction to review IRS determinations.  Even if it only helps a few individuals in extreme cases—after all, equitable relief is rarely granted—interpreting the deadlines as nonjurisdictional for both sections 6330 and 6015 would at least treat with consistency provisions enacted at the same time for the same reasons (and with about the same amount of forethought). 

What is the moral of the story?  Casual drafting sometimes causes years’ worth of problems.  A more egregious recent example is shown by the Tax Court’s ruling in Farhy v. Commissioner, 160 T.C. No. 6 (April 3, 2023), which held that section 6038(b) penalties are not assessable because they were put in the wrong part of the Code—chapter 61 of subtitle F rather than with the assessable penalties contained in chapter 68.  The Tax Court pointed out that unlike other penalty provisions in other areas of the Code, no separate provision was made for assessing section 6038(b) penalties, nor was there even a cross-reference to chapter 68.  Id. at *4.  My best guess is that when this penalty was being drafted, no one asked, how will that be assessed?  The Congressional habit of rushing legislation through and drafting provisions hurriedly sometimes yields weird and inconsistent results.  Certainly I could not have imagined that tax practitioners and courts, including even the Supreme Court, would spend twenty-five years and hundreds of pages parsing parentheticals that were drafted with little scrutiny.  Put differently, the excitement of being in the room where it happens may be long gone (for me), but the “fun” sometimes continues for years.

IRS Power To Regulate Tax Practitioners Slipping Away

This post is by Christopher S. Rizek and was originally published by PT on Forbes. Chris is a member of Caplin & Drysdale, Chtd. in Washington, D.C. Chris was formerly an Attorney-Advisor and Associate Tax Legislative Counsel with the U.S. Treasury Department, Office of Tax Legislative Counsel, as well as a trial attorney with the US Department of Justice. He is a nationally known tax controversy practitioner who frequently speaks and writes about major issues in tax procedure and tax administration. In today’s post, Chris discusses last week’s district court order in Sexton v. Hawkins, another case testing the limits of OPR’s authority.

The power of the IRS’s Office of Professional Responsibility seems to be draining away in the aftermath of Loving v. IRS, 742 F.3d 1013 (D.C. Cir. Feb. 11, 2014), and Ridgely v. Lew, 2014 WL 3506888 (D.D.C. July 16, 2014).  What appears to be the latest drop comes in Sexton v. Hawkins, No. 2:13-cv-00893-RFB-VCF (D. Nev. Oct. 30, 2014).

James Sexton used to be a practitioner representing taxpayers before the IRS.  I say “used to be” for two reasons.  (Some of these facts are drawn from the complaint (and exhibits) in the case, not just the opinion, so at this point they are just allegations, but like the court I am assuming for now that they’re correct.)  One, Mr. Sexton apparently at one time represented taxpayers before the IRS, since he is a lawyer licensed in South Carolina who also has an LL.M. in Taxation.  But in 2005 he pled guilty in federal court to four counts of mail fraud and one count of money laundering.  As a result, in 2008 OPR suspended him from practice before the IRS for an indefinite period.  Since then he has made a living providing tax advice and return preparation services to taxpayers in Las Vegas.

Two, according to Loving, a person who does not actively represent taxpayers in proceedings with the IRS but merely prepares returns is not engaged in “practice before the IRS” as that term is used in the applicable statute, 31 U.S.C. § 330(a).  Since his suspension by OPR, therefore, Mr. Sexton contends that he has not been a “practitioner” before the IRS; and the rationale of Loving supports that claim.  He acknowledges that he prepares returns for clients, but again he relies on Loving to contend that he is not thereby subject to regulation under section 330.

Here’s where it gets interesting.  OPR had apparently received a complaint that Mr. Sexton was engaged in practice before the IRS, and in February, 2013 it sent him an inquiry letter.  It asked a number of questions about his practice, and requested many documents related to his clients, such as copies of returns he had prepared, any documents he used or relied upon in preparing returns, and any explanations of the tax law he had provided to clients.  OPR specifically relied on provisions of Circular 230 in its request letter, citing section 10.20 as authority for its request and for his purported obligation to comply, and sections 10.50 and 10.52 for sanctions that might apply.  In May, 2013 Mr. Sexton sued under the Administrative Procedure Act, seeking declaratory relief that he was not subject to OPR regulation and asking the court to enjoin the OPR request for information.  The Justice Department moved to dismiss.


Before reviewing the opinion, let’s pause a moment to reflect on some of the seeming paradoxes in this dispute.  First, Mr. Sexton (and perhaps the court) might consider it strange that OPR is threatening sanctions against someone whom it has already sanctioned once with an open-ended, indefinite suspension.  Perhaps the only thing left that OPR could seek to do to Mr. Sexton now would be to disbar him permanently or impose some kind of monetary penalty on him.  See Cir. 230 § 10.50.  And at the same time it is arguing that he is not authorized to practice before the IRS, OPR is relying on provisions of Circular 230 that, well, apply only to practitioners before the IRS.  Under the Loving rationale, return preparation is not practice, so perhaps OPR is investigating to see if Mr. Sexton is engaged in other activities that might constitute practice.  But what is its authority to ask a return preparer (who post-Loving is by definition a non-practitioner) about that?

On the other hand, OPR would presumably contend that it is merely investigating to see if Mr. Sexton is in compliance with his previous sanction; or it might argue that Mr. Sexton is still at least potentially an authorized practitioner by virtue of being a lawyer, that he was merely suspended not disbarred, and that its present inquiry is necessary to see if an additional sanction is necessary.  Either of these contentions would be consistent with OPR’s position, which OPR personnel repeat in various forms at every opportunity (and which I’m paraphrasing), that “once you’re in the system you’re in for all purposes” and OPR has continuing jurisdiction over you.  (I have argued elsewhere that the authority for that ongoing jurisdiction over practitioners derives from section 330(b), not section 330(a), but that discussion is for another day.)

These are all intriguing questions, and they may eventually be resolved by the Sexton court.  But they’re not in the opinion just issued, which is interesting in its own right for other reasons.  First, over the Government’s motion to dismiss, the court held that it had jurisdiction under section 702 of the APA, because the OPR investigation constitutes a “final agency action for which there is no other adequate remedy in a court.”  It may seem strange (and I’m sure OPR feels this way) to characterize a mere inquiry letter as a final agency action.  But to that, the court essentially responds that OPR is hoist by its own petard.  It finds that OPR’s assertion of jurisdiction over Mr. Sexton and his business is itself a final agency action that has consequences, among which would be application of the very provisions OPR cites, i.e. the obligation under section 10.20 to respond to its inquiry and the possibility of additional sanctions under 10.50.  Other consequences might also ensue: Mr. Sexton claims that OPR has threatened to withdraw his ability to e-file returns if he fails to respond to the inquiry letter, and the opinion points out that the letter would require him immediately to turn over otherwise confidential client records and returns.  OPR’s position, the court states, “elides the important distinction between a mere investigation, which is likely not final, and the instant demand for documents under color of law and threat of consequences, which is.”  And the court finds that there is no adequate remedy to prevent the harm that could flow from that, pointedly noting the Justice Department’s concession at oral argument that there was “no possible administrative remedy or process for contesting the production of the material.”

In a second holding, and largely for the same reasons, the court finds that Mr. Sexton has adequately asserted a claim for relief.  The issues it describes include whether Mr. Sexton is a “practitioner,” whether OPR jurisdiction extends to a “former practitioner” and his business, and most interestingly “whether the giving of tax advice is beyond the scope of the regulatory authority” of OPR.  That the court even appears intent on deciding that third issue, which has been the subject of much speculation since Loving, should give the government some pause.

Third and finally, the court enters a preliminary injunction, again based mainly on the lack of any other adequate remedy.  It notes that once the  requested documents are produced they cannot be “unproduced” (its word), and it specifically finds that the production itself could constitute irreparable injury, whereas on the other hand there is no hardship to the IRS or adverse impact on the public from waiting.  The court thus specifically enjoins the production of documents – but not the entire investigation – and prohibits the IRS from suspending Mr. Sexton’s ability to e-file because he has failed to produce those documents.

There are many other thought-provoking asides and comments in the opinion, which I urge readers to review carefully.  And while I don’t want to speculate how this case will eventually turn out, it does seem, as I said at the start, to be at the very least another temporary setback for OPR.  The government has now suffered three consecutive losses in its effort to reach return preparation activities, whether conducted by non-practitioners (Loving),former practitioners (Sexton), or even current CPAs (Ridgely).  Given the court’s comments and holdings in this initial opinion, a final loss in Sexton could further seriously undercut OPR’s authority.

On the other hand, the court’s conclusion that there is no potential harm to the public from letting a convicted felon and suspended practitioner continue to prepare returns seems questionable.  It is certainly inconsistent with the findings of the IRS’s return preparation study, the regulations overturned in Loving, and the views of the organized tax bar and accounting profession.  Many of us believe additional legislative authority is required and urge a thorough re-writing of section 330, although it is hard to believe a Republican-controlled Congress will be inclined to give the IRS new and expansive regulatory powers.

So the most likely result may just be continued fights over – and possibly further erosion of – OPR’s authority.