In the post last Friday, I incorrectly stated that the motion for immunity was filed by the expert witnesses. In fact, it was filed by the petitioner. That correction may not seem like much of a difference but it signals a different motivation for filing the motion. Petitioners want the testimony of the expert witnesses rather than having them take the 5th which would send a terrible signal about their reports. Even though petitioner’s attorney must have known their motion had almost no chance of success, they signaled their desire to have the court hear it.
The title to the post is a bit misleading because the case I will discuss concerns a petitioner who died before the filing of the petition but after the issuance of the notice of deficiency. This situation deserves some attention as well as the situation that occurs when a person files a Tax Court petition and then dies. I will discuss both situations.
Before getting into the issues raised by the case, I feel the need to mention again just how unbelievably slow the Tax Court can be in rendering an opinion. The petition in Sander v. Commissioner, T.C. Memo 2022-103 was filed on October 17, 2016. The case raises a procedural issue of whether the taxpayer’s daughter can file the petition. This is not an especially novel issue as signaled by the fact a memorandum opinion was issued in this case. The IRS quickly answered the case. It filed a motion to dismiss the case for lack of jurisdiction in June, 2017 after the petitioner highlighted the appropriate party issue by filing a motion to substitute parties and change caption. The case was assigned to a specific Tax Court judge in July, 2017 for the purpose of deciding the two motions. A hearing was held in November of 2017 on the motions. For reasons not clear to me the Court waited until May of 2018 to order briefing in the case but the briefing was finished by September of 2018. Four years later the next development after the submission of the briefs was the opinion issued on October 6, 2022.
This is too long. The judge has a responsibility to move cases quicker than this and the Chief Judge has a responsibility to prod the judges who are slow in processing their cases. There are too many cases at the Tax Court that are taking way too long reach disposition for no discernable reason. Maybe the Court was waiting and hoping that petitioner would get herself appointed as the personal representative of her mother’s estate during this lengthy period, but the docket does not reflect any activity or requests for status reports on that matter.
Sandra Sander established a trust before her death. She and her daughter, Leda, were the trustees. On July 4, 2016, Sandra Sander passed away leaving Leda as the sole trustee. On July 15, 2016, the IRS issued a notice of deficiency to Sandra. Leda filed a Tax Court petition and later filed a Motion to Substitute Parties and Change Caption. After six years, the Court denies the motion because Leda does not have authority to act for Sandra’s estate but states that:
We reserve ruling on respondent’s Motion to Dismiss for Lack of Jurisdiction to allow an opportunity for a probate action to be commenced for Sandra’s estate and for a personal representative to be appointed.
The ruling is taxpayer friendly but wow. This is a slow moving train.
As mentioned above Sandra created a trust. Without reading the briefs, which I cannot access without calling the Court, waiting a week or two and then paying for the documents, I suspect Leda’s argument was that the trust placed all power in her following her mother’s death. Many people create trusts in order to bypass probate or for other reasons. This case pits the power of the trust to allow Leda to represent the estate against the laws of Florida limiting how it can do so.
The first issue posed by the Court is “Does Leda have the authority under Florida law to litigate this case?” The Court then cites to Tax Court Rule 60 which discusses in (a) who should be the petitioner and in (c) the issue of capacity. Rule 60 (c) provides in part:
The capacity of a fiduciary or other representative to litigate in the Court shall be determined in accordance with the law of the jurisdiction from which such person’s authority is derived.
So, the Court must look to state law which it does. The Court determines:
The relevant state law, for the purpose of determining whether Sandra’s personal representative could litigate this case, is Florida Probate Code § 733.612. That provision gives the personal representative the power to litigate for the “estate.” Id. § 733.612(20). It follows that state law would give a personal representative of Sandra’s estate the authority to proceed in Tax Court.
Leda relied on Estate of Galloway v. Commissioner, 103 T.C. 700 (1994) in arguing that she had capacity to litigate without following state probate procedures. The Galloway case involved the interpretation of California law in a circumstance where the daughter was named as executor of the decedent’s will but had not been appointed as personal representative of the estate.
Estate of Galloway, 103 T.C. at 703-05, held that California Civil Procedure Code § 377.33, “[t]he controlling provision in these circumstances,” authorized the Tax Court to order that the daughter could represent the decedent’s estate in the Tax Court deficiency action. Estate of Galloway explained that it interpreted California Civil Procedure Code § 377.33 “in very broad terms” to give the Tax Court “the authority to make an appropriate order in the interest of justice.” Estate of Galloway, 103 T.C. at 703. Estate of Galloway concluded: “Given the authority by Cal. Civ. Proc. Code sec. 377.33, . . . we will make an order appointing [the taxpayer’s daughter] as a special administrator of decedent’s estate solely for purposes of this action.” Id. at 704-05.
It’s easy to see why Leda would argue for a similar order. The Tax Court carefully parses Florida estate law citing to a pair of cases in support for its conclusion that Florida law differs from California law in material ways. Leda argued that because she was a trustee of a trust, something not present in the cited cases, her situation differed in a material way. The Tax Court disagreed finding that Florida law required a personal representative otherwise a secondary path to collection would be required:
To allow the Sandra E. Sander Lifetime Trust to litigate this case merely because of its secondary liability would elevate that entity over all other persons who might be held secondarily liable for the income tax liabilities.
So, the Court denied the motion to substitute parties.
It then moved on to the analysis of whether it had jurisdiction. The Court quickly determined that it lacked jurisdiction:
Under Rule 60(a) and (c), when a petition has been filed after the taxpayer is deceased, the petition must have been filed by a fiduciary entitled to bring the case on behalf of the deceased taxpayer. Fehrs v. Commissioner, 65 T.C. 346, 349 (1975).
Despite this finding, the Court granted Leda, or some other party, six months to get properly appointed under Florida law and allow the Court to have jurisdiction. As mentioned at the outset, the ruling is taxpayer friendly and shows that in some contexts the Tax Court bends over backwards to assist parties in obtaining jurisdiction. Another example is imperfect petitions which we have discussed here. Another example occurs when one spouse files the initial petition. The Court allows the non-petitioning spouse to opt in for a reasonable time after the filing of the petition but does require the second spouse to make it clear that they desire to participate. These rulings are consistent with Tax Court Rule 60(a) which states in part:
A case timely brought shall not be dismissed on the ground that it is not properly brought on behalf of a party until a reasonable time has been allowed after objection for ratification by such party of the bringing of the case; and such ratification shall have the same effect as if the case had been properly brought by such party.
This case provides an example of Tax Court Rule 60 in situations in which the petitioner timely petitions but lacks appropriate capacity. A similar issue arises when the petitioner passes away after filing the petition. Upon the death of the petitioner, the Court needs someone with appropriate capacity to step into the taxpayer’s shoes.
Rule 63(a) provides guidance upon the death of a petitioner. It states:
If a petitioner dies, the Court, on motion of a party or the decedent’s successor or representative or on its own initiative, may order substitution of the proper parties.
When the Court learns that a petitioner has passed away, it will issue an order seeking to have a substitute appointed. IRS counsel generally assists unrepresented parties with the necessary motion in Tax Court but does not assist them in obtaining the necessary state court appointment. As in the Sander case, the death of the petitioner can cause significant delays in the case and put the Court in an awkward position of not wanting to dismiss a case but not having an appropriate party with whom to work.