Continuing to build on data reported in the National Taxpayer Advocate’s annual report, this post is about a graph from her report appearing on page 197 that shows “Cases Dismissed, Settled, and Tried in the Tax Court, FYs 2012 -2021”. The chart basically shows that almost 80% of cases settle. I displayed a prior chart from the report in a recent post discussing where the cases settle between Counsel and Appeals. It shows that 1-2% of the petitioned cases get tried. Today’s post will focus on the almost 20% of cases that melt away as the result of dismissals. This seems like a high number but it is a number consistent across the decade of reported information in the graph displayed and, I think, consistent historically. Should we care that one out of every five taxpayers gets dismissed without having their case resolved by settlement or opinion?
read more...Here is the graph from the NTA report:
Why do so many cases get dismissed each year? Is it because of the high number of pro se taxpayers who don’t know when to file or don’t follow through to properly prosecute their cases? Is the number of dismissals of Tax Court cases different than the percentage of dismissals at other courts? Is this just a normal litigation melt? If it is abnormal, is there something that could be done to keep more of these petitioners on track to a merits resolution of their case?
I start by saying that I don’t know why so many petitioners get dismissed. There are certainly a fair number who file late (or early) and deserve to be dismissed because they have not properly invoked the Tax Court’s jurisdiction. Other than possibly clearer notice of the deadlines, something Congress tried to address in 1998 by requiring the IRS to put into the notice of deficiency the actual last date to timely file the petition, I don’t have any suggestions for this portion of the melt. Deficiency cases make up the vast majority of Tax Court petitions. Those petitioners, since 1998, are not only told they have 90 days to petition but if they look on the first page of the notice are also told the actual date. Petitioners to the Tax Court in other types of cases do not receive the same treatment and that would be a suggestion for improvement. Without legislation on this point, the IRS was reluctant in the past to put a date on the notices from which a taxpayer could petition the Court, since a bad date offered the taxpayer no protection. That could change in the aftermath of Boechler, depending on its outcome, and might provide a basis for the IRS reconsidering its administrative decision on this point since reliance on an incorrect date provides a potential basis for equitable tolling.
I have not done the empirical work needed to determine the percentage of the 20% of dismissals that result from untimely petitions. I do not think that untimely petitions provide the only meaningful basis for dismissals. My guess is that dismissals for something other than an untimely petition make up enough of the dismissals to warrant closer review. In a meeting between Tax Court judges, members of the low income taxpayer clinic community, and Chief Counsel lawyers a decade ago, Susan Morgenstern raised this issue. I do not know of a study that has occurred which would provide answers. This post simply raises that question again and suggests that thought be given to the problem because I think it is a problem that primarily impacts low income petitioners.
For anyone who has regularly attended Tax Court calendars, one basis for the melt becomes clear – dismissals for failure to properly prosecute. At almost every calendar call a handful of cases get dismissed because the taxpayer simply fails to show up and did not follow through with the IRS after filing the petition. Chief Counsel attorneys generally try harder than might be expected or required to find and engage petitioners who drop out after filing the petition. They also generally give a break to petitioners who have worked with Appeals or Chief Counsel toward resolution of the case after the filing of the petition but do not appear in Tax Court on the day of the calendar. Many of the Tax Court judges also try hard to keep petitioners from these types of dismissals. Nonetheless, I believe this type dismissal makes up a reasonably substantial portion of the 20% melt and it deserves study. I also believe that the vast majority of petitioners in this part of the melt are unrepresented and most will have filed their petition electing the small tax case procedure.
My non-empirically based observation of one big reason why people who have enough energy and interest to file a Tax Court petition (only 3% of recipients of a notice of deficiency do this and only about 1% of the recipients of a CDP notice of determination do this) end up losing interest is that their cases go dark for a substantial period of time after filing the petition. Re-starting 15 years ago, Chief Counsel must file an answer in small tax cases where the vast majority of petitioners are unrepresented. In most cases involving the 75-80% of unrepresented Tax Court petitioners, the answer provides little benefit to the petitioner or, because of the quality of the petition and the general practice of Chief Counsel to deny almost everything, the case as a whole. It does fill a part of the void I refer to when I say the cases go dark. During the almost 25-year period that the Tax Court waived the filing of an answer in small tax cases, this six to ten-month period of darkness when the petitioners hear nothing caused many of them to call the Tax Court asking what was happening. A big reason the Tax Court reinstituted the relatively meaningless answer requirement in small tax cases was to fill the void and to give the petitioners a contact point at Chief Counsel rather than the Court. [Another big, and certainly legitimate, reason was to force Chief Counsel to look at the petition and raise jurisdictional issues where appropriate, taking some of that burden off of the Court.]
Unrepresented petitioners receiving the answer that denies just about everything they have said sometimes feel they have lost the case at that point, not understanding the role of the answer. Chief Counsel’s Office sends out a letter to the Petitioner when they mail a copy of the answer, and the letter provides good information to the petitioner. This also gives petitioners a contact point in Chief Counsel’s office.
After the answer, their case reenters the void because it can take several months before they hear from Appeals. My concern is that many petitioners lose interest in their case during this period and that’s something that deserves study and perhaps remedy. I would prefer a system that required Chief Counsel not to file a mostly meaningless answer in small cases but to relatively quickly file a statement of jurisdiction and a notification to petitioner of the person assigned in Counsel and Appeals. That way the Court knows Counsel reviewed the petition for jurisdictional defects and those can be addressed at the beginning rather than the end of the case and the petitioner knows who to work with. Remember that most of these petitioners are coming to the Tax Court from Correspondence Examination where they have no one to work with. The whole process is a black box to them with no human. Give them a human with whom to interact and they will be more engaged.
An even better system would involve engaging clinics at the outset of the case. The Tax Court sends out a letter at the outset of the case that does a nice job of describing the process and that, in the same envelope, includes a message about the clinics in the area in which the petitioner has requested place of trial or lives if no request was made. Chief Counsel also sends out a letter, linked above, with the answer pointing to the clinics. So, it’s not as though petitioners are not given information about clinics at the outset, but we now know from many years of these notices going out that a relatively low percentage of petitioners reach out to clinics at this stage. A better model might be to provide the clinics with information about the petitioners that would allow the clinics to reach out and offer their services.
This doesn’t happen in the current system for two reasons. First, Chief Counsel’s office feels constrained by the disclosure laws against providing this information to the clinics even though it is at this point public information. I understand because there are cases applying those laws to public information. There has been recent movement allowing Chief Counsel and IRS employees to refer taxpayers to specific clinics rather than just point them to Publication 4134. Perhaps there could be additional adjustment to the disclosure laws to allow Chief Counsel to notify the appropriate clinics as new cases arise.
Second, the Court interprets the privacy of petitioners as paramount to the public’s right to know in a meaningful way, and so keeps the information public in a way that clinics cannot easily access it without going to the clerk’s office (something not even possible during the pandemic) or paying for the information. Even if a clinic wanted to pay for the information and reach out to petitioners, it doesn’t know which petitioners come from their area and so would need to buy information about every individual petitioner and then sift through to find the relevant petitioners. The Court could change its practice of providing information which is something I have discussed previously.
Prior to the pandemic I tried to go to the clerk’s office shortly after each calendar for my city was published in order to spend a few hours there and look at every case on the calendar to cull the ones I thought met the income criteria and may need the assistance of the clinic. For those cases the clinic then reached out. I could only do this if I happened to be in DC and had extra time. For a brief period, the students at the law school at University of District of Columbia did this research in person, but that project was not sustained. Even doing this, however, the clinic contact with petitioners only occurred at the point of a calendar and not at the outset of the case.
The Veterans Court of Appeals handles petitioners differently and has a much lower melt. The electronic docket there allows parties to see information upon which a preliminary case evaluation is possible and the petitioner can be contacted. The Veteran’s Consortium Pro Bono Program seeks to assign attorneys to most cases. While the statistics require more explanation than I can provide in this post, you can see from the 2020 annual report that the melt is lower and my understanding is that even the cases that appear as possible melt, like the voluntary dismissals, are generally the result of case resolution. The Veterans Court also has Central Legal Staff attorneys who conduct mediation between the parties, unlike the tax system which relies on IRS Appeals to do something somewhat similar. The Veterans Court also sends out a letter at the outset similar to the one sent by the Tax Court but one that might provide the basis for some discussion between the Tax Court and the bar on how it could fashion its opening correspondence.
If we care about the melt in Tax Court, the system might benefit from a review of ways the IRS, the Court and the bar/clinics could more effectively serve the pro se petitioners. The Court of Veteran Appeals offers one model.
I don’t know the relative proportion of dismissals on the merits (e.g., for failure to properly prosecute) to dismissals for lack of jurisdiction (which currently includes late-filed petitions). However, in preparing an amicus brief for a cert. petition for the late-filed deficiency case of Organic Cannabis (a cert. petition not granted), I looked at a random 1% of all Tax Court petitions filed in f/y/e 9/30/18 — i.e., all petitions filed consecutively from 10001-18 to 10245-18. Of those 245 petitions, I excluded all non-deficiency petitions, leaving 221 deficiency petitions. Of those 221 deficiency petitions, 17% (i.e., 38/221) were dismissed for lack of jurisdiction. I looked at each order of dismissal of the 38 case and found the following reasons for dismissal for lack of jurisdiction:
Number of Cases Dismissal Reason
25 failure to pay filing fee and, in some case, also failure to perfect petition
10 late filing
1 failure to file proper amended petition
1 no original signature on petition
1 tax paid before notice of deficiency issued
Thus, the majority of dismissals of deficiency petitions for lack of jurisdiction arise from taxpayers who, in response to notices of deficiency, send letters to the Tax Court or Forms 2, without the accompanying filing fee or fee waiver application. The Tax Court will create a docket number simply on the receipt of a letter, without payment of the filing fee or fee waiver form. The Tax Court issues orders in these cases directing the taxpayer to pay the filing fee and, if no Form 2 has been submitted, file one. Cases are dismissed for lack of jurisdiction where the taxpayers don’t respond to the orders. Of course, these are pro se cases. It is hard to figure out, though, how to improve taxpayer compliance with these orders. Maybe the taxpayers just don’t want to invest the $60 or go through the process of getting the fee waived. My only suggestion would be that, if there is a contact phone number or e-mail address on the letter or Form 2, someone from the Clerk’s Office should be asked to call or e-mail the taxpayer when the Tax Court’s order is sent to try to explain the problem and process and encourage payment of the filing fee or a fee waiver application. A human touch might help.
Now that Orders can be searched in Dawson, I decided, just for fun, to search Dawson for Orders with the word “Dismissal”. I took four very random weeks during 2021 (March, June, August & October). Each search brings up a maximum of 100 Orders. Many of the Orders are not dismissals. Out of 400 orders, 201 were Orders of Dismissal (or 50 per week). Note that, based upon the NTA’s numbers, there seem to be an average of 60+ dismissals per week (18,000*17%=3,000, or 60 per week).
The breakdown was:
Failure to pay filing fee – 47.5%
Failure to ratify petition – 22.5%
Failure to prosecute – 8.5%
Improper Petition/Failure to State a Claim – 5% (includes some with no fee)
No deficiency – 4.5% (including several where the liability was paid before NOD)
Late filed petition – 4%
Petitioner Dismiss/Withdraw – 3.5% (includes full-pay after petition)
No determination – 3% (CDP cases)
Other – 3%
I was concerned that the number of cases with failure to pay filing fees was a fluke, but I took a few other samples and it seems to be correct. Of the 199 Orders that weren’t dismissals, more than half were Orders to pay filing fees.
Rather than focus on why people don’t pay filing fees, I am more interested in why so many petitions are dismissed for failure to ratify.
“Very random” was not accurate. I picked weeks that popped into my head, and that weren’t close to each other.
I am not positive that this would be the major reason not to ratify but the Tax Court treats many pieces of correspondence as petitions in its effort to assist petitioners to meet the filing deadlines. These are called imperfect petitions. I think that many of the people writing into the court did not intend to file a petition and so don’t respond to the correspondence they receive to ratify their imperfect petition. If the court were not so helpful in trying to treat a wide range of correspondence as an imperfect petition, I think the number of dismissals for failure to ratify would be much less.
Some of the “failure to ratify” were also “failure to pay filing fee.” I believe I included them in “failure to pay” (I didn’t double-count them).
There is an amazing variety in the title of each Order. Some clearly indicate “failure to pay filing fee” but many don’t. For statistical purposes, it would have been helpful if they had been categorized consistently.
It is worth remembering (as you’ve said in prior posts) that these “failure to ratify” and “failure to pay” cases are signed by the chief judge, and are never assigned to anyone. So at least they have a minimal effect on the workload of the other judges.
Carl Smith’s commendable legwork should have already been done by someone at the Tax Court. My suggestion is that they do as my local Superior Court requires: Have a cover sheet with “check the box” responses to whether the filing fee is paid, or waiver request attached. And, whether the petition signed, by the taxpayers themselves or a practitioner admitted to practice. It could also ask for date on the SNOD, date of mailing or delivery to Tax Court by acceptable method, and whether more than 90 days have passed between them.
No cover sheet, petition is sent back. Maybe some relief if defects are cured within 30 days.
Keith – Thanks for a very thoughtful discussion of one of the many ways that the U.S. tax system is so burdensome for the vast majority of taxpayers. It’s bad enough that the Code and Regs. have become so substantively complex that in many areas even experienced practitioners have to become specialists in one or a very few Code sections in order to navigate the rules applicable to affected taxpayers. You – and low income taxpayer clinicians generally – and TAS do a great job of trying to make the tax system operate in a more effective and equitable way for the overwhelming majority of taxpayers who lack the information or the financial resource [or both] to effectively respond when they receive IRS notices. The system has substantially improved in many ways since I started practicing, but the automation that’s improved “efficiency” for the IRS has made things worse in other ways. Keep up the good work.
Ron Wiener, Philadelphia