We have been requested to notify you that the USD School of Law-RJS Law Tax Controversy Institute will take place this summer on July 20, 2018 at the University of San Diego School of Law Campus. Some PT guest bloggers will be speaking as will Chief Judge Paige Marvel of the Tax Court. For more information about the conference go here. It is nice to have a conference that focuses on the issues discussed in this blog.
In United States v. Stein, the 11th Circuit reverses longstanding precedent in that circuit and allows a taxpayer to get past a summary judgment motion filed by the IRS and reach the jury. The decision may not result in a victory for Mrs. Stein in the long run but it allows her, and other similarly situated taxpayers (as well as litigants in non-tax cases), to put on their case.
As I will discuss further below, the concurring opinion of Judge Pryor in this en banc opinion provides a history lesson supporting the reasoning of the Court’s opinion and gives interesting insight into the relationship between the dreaded Stamp Act and Mrs. Stein’s ability to move past summary judgment.
read more...The IRS brings relatively few affirmative suits to collect. It does so when the amounts justify the expenditure of effort, the potential to actually collect exists, and, usually, the taxpayer’s cooperation with administrative collection efforts has been less than robust. In this case, the IRS sues Mrs. Stein seeking to reduce its assessment of approximately $220,000 to judgment. It alleged that she had unpaid taxes for 1996 and 1999-2002.
As is normal in these cases, the IRS submitted account transcripts showing her outstanding liabilities and an affidavit from an IRS officer supporting and explaining the transcripts. It moved early in the case for summary judgment based on this information. Mrs. Stein, in response, filed an affidavit in which she stated that to the best of her recollection she paid the taxes at issue. Her affidavit addressed each year in turn with such a statement; however, it did not contain any corroborating evidence of payment.
The district court granted the IRS summary judgment concluding that the evidence presented by the IRS created a presumption that the assessments were correct and that Mrs. Stein “did not produce any evidence documenting said payments.” Her lack of documentation did not allow her to overcome the presumption of correctness. So, the district court determined there was no genuine dispute as to any material fact making the IRS entitled to summary judgment as a matter of law.
She appealed the district court’s decision to the 11th Circuit but lost her appeal. She requested en banc review of the decision. The en banc review resulted in a reversal of the prior decisions in her case and a reversal of Mays v. United States, 763 F.2d 1295 (11th Cir. 1985). In reversing, the panel examined FRCP 56 which governs summary judgment and determined that “nothing in Rule 56 prohibits an otherwise admissible affidavit from being self-serving. And, if there is a corroboration requirement for an affidavit, it must come from a source other than Rule 56.”
The panel states that it makes no difference that this is a tax case. The same summary judgment standard applies in tax cases as in other areas of the law. Doubling back to its earlier statement on corroborating, the panel says Rule 56 simply has no such requirement and that “a non-conclusory affidavit that complies with Rule 56 can create a genuine dispute concerning an issue of material fact, even if it is self-serving and/or uncorroborated.” Of course, this does not mean Mrs. Stein will win her case – far from it. Unless she obtains some proof of her payment of the liabilities or finds a basis for attacking the assessments beyond the statements in her affidavit, I expect she will lose in the end.
Getting past summary judgment is still a big deal. It allows her to gather evidence in support of her payments she may not have done before and it allows her to tell her story to a jury which is where Judge Pryor’s concurrence comes into play.
Judge Pryor states that he writes “to highlight the irony of our earlier precedent when viewed in the light of the history of the Seventh Amendment.” He explains that in the decades before the American Revolution, parliament grew tired of American juries which held for American interests in tax case. So, it expanded the jurisdiction of the Admiralty Courts, which sat without juries, to include trade cases even though those cases would have resulted in jury trials in England. It later expanded the jurisdiction of Admiralty Courts in America to cover matters involving the Sugar Act and the Stamp Act, seeking to avoid “friendly” juries in America.
The colonies strenuously objected to these measures and the right to a jury trial became one of the chief complaints leading up to the revolution. It became an issue in the Constitutional Convention as well and Alexander Hamilton wrote about it in the Federalist Papers. He equated the granting of summary judgment in these circumstances to the type of behavior that our forefathers sought to avoid in overthrowing the yoke of British rule. Judge Pryor’s concurring opinion is a good read for history buffs and perhaps for any lawyer wanting to know more about the origins of American law and how to craft an argument.
By seeking en banc review, Mrs. Stein not only overturned three decades of 11th Circuit precedent but got us a history lesson as well. I wish her the best in finding proof that she did pay the taxes so that her story has a happy ending. Perhaps, if victorious, she will celebrate by drinking some tea and reflecting fondly on our forefathers. I would like to expand Judge Pryor’s logic to beat back the government’s current view of the Flora rule where taxpayers such as Mr. Larson are denied an opportunity to even step into court to dispute their tax liability without shelling over millions and millions of dollars.
Might Ms. Stein introduce as evidence the “Most Serious Problem #19″ from the National Taxpayer Advocate’s 2011 Annual Report:
The IRS uses the Excess Collection File (XSF) to store remittances when a taxpayer’s payment or credit has not been identified or resolved. Unidentified remittances (i.e., payments where the IRS cannot determine the identity of the person or entity making the payment or the account to which it should be applied) are systemically transferred to the XSF when they remain unresolved after one year. Other transfers occur when the IRS cannot refund credits because taxpayers failed to file returns or otherwise timely claim the credits. Payments transferred to the XSF are held for an additional seven years before dropping out of the IRS’s electronic system entirely.
Once it moves credits to the XSF, the IRS generally does not attempt to identify the taxpayers to apply the credits to their accounts, and the credits ultimately provide no benefit to taxpayers as payments and are not accounted for as tax receipts.
In May 2006, the XSF contained over $3.5 billion in unapplied credits, and as of January 2010 had grown to over $4.7 billion — a 34 percent increase over the past four years, and more than double its 1999 balance. Moreover, taxpayers with annual income of less than 250 percent of the poverty level (i.e., low income taxpayers) accounted for 60 percent of the open cases in the XSF. Almost all of the open cases are transfers of less than $5,000.
The Treasury Inspector General for Tax Administration (TIGTA) has estimated that more than half of the transfers to the XSF result from IRS errors. . . .
Moreover, IRS studies have shown that even minimal efforts to research taxpayers’ whereabouts and contact them personally could prevent many of the transfers. the IRS requires such additional effort in some cases. However, it reserves these procedures for “high-dollar” cases (in which the credit is $100,000 or more) even though more than half of the transfers to the XSF for which a taxpayer identification number was found came from low income taxpayers and almost all are for less than $5,000, and even though the IRS is aware that it would be cost-effective to extend the enhanced procedures to all accounts.
Despite being the subject of a prior analysis in the National Taxpayer Advocate’s annual report to congress, four TIGTA audits, two IRS task forces, and multiple recommendations since 1999, the administration of the XSF remains a struggle for the IRS. Improper transfers to the XSF, coupled with the IRS’s inability to timely address and resolve these payments and their underlying issues, unduly burden taxpayers and generate costly rework for the IRS.
“As is normal in these cases, the IRS submitted account transcripts showing her outstanding liabilities and an affidavit from an IRS officer supporting and explaining the transcripts.”
IRS account transcripts contradict each other enough to prove that IRS account transcripts do not describe what things happened, let alone proving that the IRS’s actions were legal. IRS officers and DOJ employees sign declarations under penalty under 28 USC section 1746 which can be proven to be perjured and courts do not care. A lot more cases should reach juries.
TIGTA’s reports also show some of the ways in which IRS transcripts are unreliable, with payments credited to embezzlers instead of to the correct beneficiaries.
This helps prove why we need juries in Tax Court and Court of Federal Claims too.
“I would like to expand Judge Pryor’s logic to beat back the government’s current view of the Flora rule where taxpayers such as Mr. Larson are denied an opportunity to even step into court to dispute their tax liability without shelling over millions and millions of dollars.”
The Supreme Court provided that logic in a footnote in the Flora ruling, admitting that penalties are not taxes. The Supreme Court reinforced that logic by taking jurisdiction in the Obamacare suit. The 16th Amendment reinforced that logic by skipping due process for taxes not for penalties.
I’d rather see juries reached by honest people than by promoters of tax shelters, but this opinion is rather self-serving.