Partners Argue Notices of Deficiency Required, No Harmless Error Rule Applies

• § 6212(a)¹ applies to the IRS's determination of "any" income tax deficiency;

• § 6213(a) forbids the IRS to assess when a required deficiency notice is not mailed, unless a valid exception applies;

• the only exception in issue is § 6230(a)(1), which excepts assessments made via § 6231(a)(6) computational adjustment;

• under § 6231(a)(6), deficiencies can be assessed via computational adjustment only if they are a "change in the tax liability of a partner which properly reflects the treatment under this subchapter [63C] of a partnership item;"

• the settlements in these cases mandate "[n]o adjustment to the partnership items"; therefore, the IRS agreed the partners' original returns properly reflected the treatment of their partnership items under subchapter 63C; and

• the deficiencies resulting from the settlements were changes in the partners' tax liabilities which properly reflect the treatment under subchapter 1E of their § 465 amounts at-risk -- which are nonpartnership affected items, not partnership items.

a. Yes, Under §§ 6212(a) and 6213(a) Bush and Shelton Are Within the Class of Persons Entitled to Pre-Assessment Deficiency Notices

As relevant here, § 6212(a) states:

At issue are subtitle A income taxes. Section 6212(a) applies to any tax deficiency imposed by subtitle A; therefore, Bush and Shelton were within the class of persons entitled to § 6212(a) deficiency notices.

Consequences for the IRS's failure to send required notices are addressed in § 6213(a), which states, in relevant part:

Section 6213(a) plainly states that "no assessment . . . shall be made" unless a deficiency notice is mailed to the taxpayer. Emphasis added. On its face, § 6213(a) applies to every assessment except termination assessments (§§ 6851 and 6852) and jeopardy assessments (§ 6861).³ Neither exception applies here. Section 6213(b) lists four additional exceptions; none of which apply here. [Add:2-3] One other possible exception -- § 6230(a)(1) -- is discussed below. The maxim expressio unius est exclusio alterius applies to § 6213(a).⁴

No deficiency notices were mailed; therefore, under § 6213(a), the assessments were illegal, and the amounts collected must be refunded. Until this case, every circuit to address the issue held that § 6213(a) creates a categorical, nondiscretionary notice requirement, violation of which can never be harmless.⁵

b. No, the Settlement-Based Assessments Were Not the Result of § 6231(a)(6) Computational Adjustments

As relevant here, § 6230(a) states:

Section 6230(a)(1) relieves the IRS of its obligation to comply with § 6212(a) notice requirements, but only if the deficiency can be assessed as a "computational adjustment." Notwithstanding that relief, under § 6230(a)(2)(A)(i), a deficiency notice is always required if the deficiency is attributable to affected items which require partner level determinations, regardless of how they are assessed. Bush and Shelton have always asserted that deficiency notices were required here for two independent reasons: their deficiencies (i) could not be assessed as computational adjustments under § 6230(a)(1), and (ii) required partner-level determinations.⁹ The majority agreed with Bush and Shelton that the "assessments were not computational adjustments, and the IRS was required to issue a notice of deficiency prior to making its assessment of tax."¹⁰

The answer to the Court's first question is determined by whether the deficiencies in issue could have been assessed as § 6231(a)(6) computational adjustments. The plain language of § 6231(a)(6) proves they could not.

Section 6231(a)(6) defines "computational adjustment" as:

The majority and dissent¹¹ focus on whether a change to partnership items is required before a resulting change in tax liability can be held to properly reflect the "treatment" of a partnership item. That issue is addressed below, but on these facts it need not be determined to resolve these cases.

• the treatment of partnership items on the original 1985-1995 returns, both partnership and individual, as applicable, was proper,

• the taxes owed and paid based on those original returns properly reflected the treatment under subchapter 63C of those partnership items, and

• additional settlement-related taxes, if any, would be solely attributable to the proper treatment under subchapter 1E of the partners' nonpartnership affected item amounts at-risk.

Therefore, the additional, settlement-related taxes could not be assessed via computational adjustments because those changes to the partners' tax liabilities solely reflected the treatment under subchapter 1E of a nonpartnership affected item (§ 465 amounts at-risk) as agreed in the partner-level settlements.

Regardless of any other analysis, the Bush and Shelton deficiencies could not be assessed via computational adjustments based on the terms of their settlements, and § 6230(a)(1) cannot except those settlement-related assessments from the § 6213(a) consequences of the IRS's failure to issue deficiency notices required by § 6212(a).

The majority recognized that "the statutory language is quite clear:"¹³

In reaching its holding, the majority examined the purpose of § 6231(a)(6) within TEFRA's statutory scheme and Congress's chosen language for implementing that purpose.¹⁵

Partnerships file information returns and send a Schedule K-1 to each partner telling them the proper treatment of their share of the partnership items. On their individual returns, § 6222 mandates that partners treat those partnership items consistently with the Schedule K-1 or face penalties.¹⁶ The majority recognized the general rule that

Unlike the dissent, the majority did not omit the second sentence of § 6231(a)(6)'s definition from its analysis and recognized that the second sentence reinforced the plain language of the first: only deficiencies resulting from the change to a partnership item can be assessed by computational adjustment.¹⁷

The majority's straightforward, common sense interpretation gives meaning to both sentences of § 6231(a)(6) and effectuates TEFRA's goals.

But even if the dissent's analysis were correct, it would not support the dissent's conclusion on these facts. Here, the deficiencies assessed against Bush and Shelton were (1) changes in their tax liability (2) which applied subchapter 1E (3) to an affected item (their § 465 amounts at-risk).

In other parts of its opinion, the dissent appears to adopt the rationale of the Court of Federal Claims that because every affected item has at least one partnership item element,¹⁹ every deficiency attributable to an affected item must per se be assessed by computational adjustment²⁰ -- regardless of whether that deficiency arises from a partnership item element or a nonpartnership item element.²¹ In other words, the dissent would judicially amend § 6231(a)(6) to define "computational adjustment" as "the change in the tax liability of a partner which properly reflects the treatment . . . of a partnership item or an affected item."

The dissent is wrong on the law and the facts.

The second sentence is essentially the dissent's analysis, but it is an exception to the general rule in the first sentence that applies only to § 6231(a)(10) indirect partners, i.e., Congress rejected it for direct partners. Bush and Shelton are direct partners, not indirect partners. "Where Congress includes certain exceptions in a statute, the maxim expressio unius est exclusio alterius presumes that those are the only exceptions Congress intended."²³ This maxim applies to deficiency notices.²⁴

Congress speaks through statutes. If a statute is clear and unambiguous, courts may not go further.²⁵ Courts must apply a statute according to its terms.²⁶ When a statute includes an explicit definition, courts must follow that definition.²⁷ Specifically, if Congress, for tax purposes, has defined a term, that definition controls even though without it courts might conclude differently.²⁸ It is axiomatic that the statutory definition of the term excludes unstated meanings of that term.²⁹ As this Court has stated:

Finally, the dissent would apply the second sentence of § 6231(a)(6) to all partners, direct and indirect, thus rendering the first sentence superfluous and violating the cardinal principle of statutory construction that statutes should be construed so that, if possible, no clause, sentence or word is rendered superfluous, void or insignificant.³²

Here the IRS expressly agreed there were no changes to partnership items.³⁴ The changes to tax liabilities were caused by agreed changes to the nonpartnership item components of the partners' amounts at-risk.³⁵ The changes to tax liabilities were not "necessary to properly reflect the treatment of a partnership item" and, therefore, the resulting deficiencies could not be assessed as computational adjustments.

The majority recognizes the general rule that § 6231(a)(6)'s definition of "computational adjustment" requires that there be a change to a partnership item before there can be a "tax liability of a partner which properly reflects the treatment under this subchapter [63C] of a partnership item." The majority had no reason on these facts to address the § 6222(c) exception to that general rule. If a partner does not file in compliance with his Schedule K-1, the IRS may assess against him to bring his treatment of his share of partnership items on his individual return into compliance with the partnership's treatment of those same partnership items on its return. Section 6222(c) serves two purposes. [Add:7] First, it logically exempts such assessments from § 6225, which allows assessment only after a partnership-level proceeding. Second, it allows the IRS to make such assessments via computational adjustment, which it otherwise could not do due to the general rule under § 6231(a)(6). The government's argument that § 6222(c) evidences the general rule for computational adjustments would render the words "attributable to any computational adjustment" in § 6222(c) superfluous, void, and meaningless. If the circumstances of § 6222 evidence the general rule, that phrase has no reason to exist.

In § 6222(c), Congress included an exception to the general rule for "consistency" purposes just as it included an exception to the general rule in the second sentence of § 6231(a)(6) for indirect partners. The fact that Congress acknowledged the need within a complex statutory framework for exceptions in specific circumstances does not make any one or more of those exceptions the general rule.

Olson began its analysis with a blatantly incorrect statement of law:

Premised on this error, Olson held that

As the majority recognized, properly read, Olson supports the partners' interpretation of § 6231(a)(6) and Temp. Treas. Reg. § 301.6231(a)(6)-1T.⁴¹Olson stands for the proposition that when an assessment is attributable to an affected item, the IRS is relieved of its deficiency notice requirements only if the additional taxes are caused by changes to the partnership item element of that affected item. Olson did not and had no cause to address or opine as to whether deficiency notices are required when, as here, the additional taxes are caused by changes to the nonpartnership item element of an affected item.⁴² The majority correctly rejected the dissent's overbroad reading of Olson's actual holding.⁴³

In these settlements the IRS and the partners agreed, inter alia,

• that there would be no adjustment to the partners' partnership items,⁴⁴

• to adjust the treatment under subchapter 1E of the nonpartnership item elements of the partners' amounts at-risk,⁴⁵

• that the partners were "entitled to claim their distributive share of the partnership losses" to the extent they were at-risk,⁴⁶

• to offset any resulting tax overpayments against any resulting deficiencies,⁴⁷

• the amount of any resulting tax would be adjusted by carryforwards or carrybacks from other tax years,⁴⁸

• the partners could deduct any cash payments on the partnership notes made after the settlement,⁴⁹ and

• that certain other defenses were specifically reserved (e.g., innocent spouse protections).⁵⁰

Tax settlements are governed by general principles of contract law.⁵³ Bush and Shelton have consistently asserted that the terms of their settlements are res judicata: neither they nor the IRS can challenge them. Not in this refund suit. Not in any prepayment Tax Court suit had the deficiency notices been issued. All parties are bound by their agreements. The parties could have agreed that Bush and Shelton would not claim losses from their partnership investments and that they would pay any asserted deficiencies without regard to other defenses, as the dissent misapprehends. They chose not to.⁵⁴ No party is bound to terms that were never included in the settlements.

Bush and Shelton have consistently asserted that the IRS's failure to properly issue the required deficiency notices denied them their right to a pre-payment forum in the Tax Court to assert

• that the IRS failed to abide by the terms of the settlement when it improperly refused to apply the offsets as agreed,

• the other defenses specifically reserved in the settlements, and

• any other issues the Tax Court had jurisdiction to determine that would reduce the final amounts owed, regardless of whether the initial tax computation was reduced.⁵⁵

Based on this fundamental misapprehension of the settlement terms, the dissent attempts to avoid a nonexistent inequity by means of an intricate grammatical analysis of § 6231(a)(6) which the majority recognizes "simply makes no sense."⁵⁶ The majority is correct that "[n]othing in [its] opinion suggests that the taxpayer has a right to relitigate issues resolved by the settlement." Nor have Bush or Shelton ever asserted that they had any such right.

As to tax refunds in general, Congress has already addressed and resolved this issue. Section 7422(a) authorizes jurisdiction over refunds "for the recovery of any internal revenue tax alleged to have been erroneously or illegally assessed or collected, . . ., or of any sum alleged to have been excessive or in any manner wrongfully collected. . . ." [Add:18] Emphasis added. When Congress enacted § 7422(b) it made clear that "[s]uch suit or proceeding may be maintained whether or not such tax, penalty or sum has been paid under protest or duress." [Add:18] "In other words, a taxpayer is not precluded from seeking a refund of a tax paid to the federal government merely because the payment was voluntary."⁵⁸ Here the IRS failed to issue required deficiency notices, then improperly began collection proceedings, confiscated credits without prior notice, automatically created liens on the taxpayers' properties, and issued § 6303(a) demand letters for payment of the remainder threatening additional penalties and interest if not immediately paid.⁵⁹ While Bush and Shelton "voluntarily" paid the remaining assessments, they indisputably did so under protest and duress.⁶⁰ Section 7422(b) makes clear that taxpayers are not to be penalized for voluntarily complying with the tax laws and relieving the IRS and the courts of the administrative and judicial burdens of additional collection proceedings. [Add:18].

As to § 6213(a) specifically, this is a straightforward issue of statutory construction. "[I]n interpreting a statute a court should always turn first to one, cardinal canon [of construction] before all others. . . . [C]ourts must presume that a legislature says in a statute what it means and means in a statute what it says there."⁶¹ "[T]he meaning of a statute must, in the first instance, be sought in the language in which the act is framed, and if that is plain, . . . the sole function of the courts is to enforce it according to its terms."⁶²

As relevant here, § 6213(a) states:

Congress was clear: "no assessment . . . shall be made . . . until such notice has been mailed to the taxpayer. . . ." Emphasis added. Congress first forbade assessment and then also forbade the IRS to collect such invalid assessments via the methods of levy or court proceedings. Congress used the conjunctive "and" to list those things it forbade: "no assessment . . . and no levy or proceeding in court for its collection. . . ." Emphasis added. The fact that Congress forbade the IRS use of two collection methods does not somehow negate Congress's separate, unambiguous determination that the assessment itself is illegal and also forbidden.

Congress was also clear that: "the making of such assessment or the beginning of such proceeding or levy . . . may be enjoined by a proceeding in the proper court." Emphasis added. There, Congress used the disjunctive "or" evidencing that an action may be brought solely to enjoin the illegal assessment, regardless of whether the IRS used either of the forbidden collection methods.

As to refunds, § 6213(a) states: "a refund may be ordered by such court of any amount collected within the period during which the [IRS] is prohibited from collecting by levy or through a proceeding in court. . . ." Emphasis added. [Add:2] This has two functions. First, it defines a period of time: "the period during which the [IRS] is prohibited from collecting by levy or through proceeding in court." Second, it establishes that "any amount collected" during that period is subject to refund. Congress was unambiguous: refund is required of any amounts collected within that period of prohibition regardless of how those amounts were collected.⁶³

Section § 6213(a) makes clear that the period of prohibition continues "until such [deficiency] notice has been mailed to the taxpayer. . . ." Any amounts assessed or collected during that period are required to be refunded. Here, it is undisputed that the IRS never mailed a deficiency notice to Bush or to Shelton; therefore, the assessment and collection of the disputed amounts occurred within the period of prohibition, the assessments were illegal, and the amounts collected must be refunded because the assessments were illegal regardless of how those amounts were collected.

By requiring refund of any amounts illegally assessed, Congress reinforced that voluntary compliance is the bedrock of our tax system and that taxpayers who voluntarily comply will not automatically be penalized by losing their refund rights.⁶⁴

a. Bush and Shelton Originally Pleaded Multiple, Alternative Grounds for Complete and Partial Refunds

In their refund claims, Bush and Shelton raised other grounds for complete or partial refunds, including that

• the IRS had backdated the assessments, which actually occurred more than one year after the settlement became effective and were therefore untimely under § 6229;⁶⁵

• under § 6404(e), interest should be abated from February 8, 1995, or alternatively, from 30 days after any deemed waiver of § 6213 deficiency provisions;⁶⁶

• the IRS erroneously computed the interest assessed;⁶⁷ and

• the IRS breached the settlement by refusing to properly determine or apply the offsets for overpayments in later years as agreed.⁶⁸

Had the IRS properly issued deficiency notices as required, Bush and Shelton could have raised those issues pre-assessment (except for the untimely assessment issue, obviously) and pre-payment in the Tax Court.

In a pre-assessment, pre-payment Tax Court suit, any of the Greenberg partners who settled on similar Forms 906, including Bush and Shelton, could have also raised other valid grounds to reduce their liabilities. For example, ¶ 12 of the Greenberg settlements specifically reserved the right to have any resulting deficiencies adjusted for carryforwards or carrybacks of losses or tax credits from other taxable years, if any. [BJApp:191-196 ¶ 12; SJApp:150-152 ¶ 12] Further, they could have asserted any deductions or credits unrelated to the partnerships to which they were entitled but had not claimed on their original returns.⁷⁰ The legislative history shows that partners can also assert these "unrelated" grounds in a refund forum, even if the deficiencies were assessed as computational adjustments.

Bush and Shelton believe that had the IRS not improperly denied them a pre-assessment forum in the Tax Court, then the ultimate amounts owed, if not the actual tax deficiencies themselves, would have been significantly reduced. Further, in general, litigation in the Tax Court is far more cost effective for all parties, with its focus on informal, voluntary discovery.⁷¹ Similarly, the Tax Court, like other Article I courts, was specifically created for its expertise in a complex area of law.⁷² By design, the Tax Court has decades of experience dealing with highly technical tax issues, including the TEFRA issues relevant here at both the partnership and partner levels, thereby streamlining the process of briefing and arguing complex TEFRA tax cases.⁷³ Whether Bush or Shelton could have prevailed in the Tax Court on those defenses, offset rights, and "unrelated" grounds will never be known, because the IRS improperly denied them the only experienced, economical, timely, pre-assessment, pre-payment forum in which they could have raised them.

It is unclear whether the Court's reference to "taxpayers" in this question is to Bush and Shelton specifically, the Greenberg partners with cases stayed in the Court of Federal Claims generally, or any taxpayer where an assessment is invalid because the IRS fails to issue a required deficiency notice. The Greenberg-related settlements, including those for Bush and Shelton, all expressly reserved the right of any partner's spouse to seek § 6015 innocent spouse relief.⁷⁴ Shelton is single and Mrs. Bush died before the refund claims were filed; therefore, neither sought innocent spouse relief in those claims, although Mrs. Bush or her estate could have sought such relief at least as to Bush's investment in Cinema '84, where Mrs. Bush was not a partner.⁷⁵ But that issue is still relevant for many Greenberg partners whose suits remain pending in the Court of Federal Claims.

b. Illegal Assessments Have No Effect on Stopping the Running of the Statute of Limitations for the IRS to Assess

If in its example the Court refers to the statute of limitations for the IRS to validly assess against Bush and Shelton, then the answer is that an illegal assessment has no effect on that deadline.⁷⁶

Section 6501(a) mandates that the IRS must assess additional taxes within three years after the taxpayer files his individual return, unless a valid exception or extension applies. When an assessment is partnership related, that deadline is subject to multiple possible exceptions.⁷⁷ Here, the last possible day for the IRS either to issue deficiency notices or to otherwise validly assess was August 7, 2000, one year after the IRS countersigned their settlements.⁷⁸

If the IRS assesses without first timely mailing a required deficiency notice, then under § 6213(a), any later assessment is "forever void and illegal."⁷⁹ Neither an illegal assessment nor an untimely deficiency notice can revive an expired assessment deadline.⁸⁰ Any amounts paid pursuant to an illegal assessment, whether made voluntarily, under duress, or by seizure, must be refunded, unless an exception applies.⁸¹ No such exception applies here.⁸²

The IRS's deadline to assess in these cases was, at its latest, August 7, 2000. On July 31, 2000, and August 4, 2000, the IRS illegally assessed against Bush and Shelton, respectively.⁸³ The illegal assessments could not extend the deadline for valid assessments; therefore, the IRS may not now validly assess against them.

c. Illegal Assessments Have No Effect on Stopping the Running of the Statute of Limitations for the Partner to Claim a Refund

If in its example the Court is referring to the statute of limitations for Bush and Shelton to claim refunds, then the answer is that an illegal assessment cannot shorten that period, though it may lengthen it.⁸⁴ While this issue is implicated in whether taxpayers are entitled to refunds under any other section of the I.R.C., it has no bearing on these particular cases.

In general, taxpayers can claim refunds up to three years after they file their individual return or two years after they pay the disputed amounts, whichever is later. § 6511(a). Bush made payments effective July 31 and August 8, 2000, and filed his refund claims on July 18, 2002. [BJApp: 43-47,203] Shelton made payments effective August 4 and August 28, 2000, and filed his refund claims on July 25, 2002. [SJApp:153,160-179,180] The timeliness of their claims has never been disputed. Therefore, Bush and Shelton do not believe this was the intended question asked by the Court here, because no tolling of limitations was needed to validate their refund claims.

a. No, 28 U.S.C. § 2111 Does Not Apply Apply to the Government's Failure to Issue a Deficiency Notice Under §§ 6212(a) and 6213(a)

After finding the IRS was required to issue deficiency notices, no required deficiency notices were mailed, and the assessments against Bush and Shelton could not be made as computational adjustments, the majority sua sponte held the IRS's failures were "harmless error." The majority reasoned Bush and Shelton made voluntary payments;⁸⁵ failed to avail themselves of pre-payment alternatives to a refund suit, such as injunctions or §§ 6320/6330 collection due process ("CDP") proceedings; and would not have prevailed on the merits anyway. This newly created "harmless error" rule and the "voluntary payment" rule on which it rests is contrary to statutory tax law, current precedent, and Congressional intent. It has been decried by tax practitioners and scholars.⁸⁶ Even the government asks that it be withdrawn.⁸⁷

The dissent correctly recognized issuance of deficiency notices is non-discretionary and the complete failure to issue that notice is never harmless.⁹⁰ As the Supreme Court explained in Cheatham, governments adopt stringent measures for the administration and collection of taxes and are "rigid" in enforcing them. Those measures are not judicial and "[i]f there existed in the courts . . . any general power of impeding or controlling the collection of taxes, or relieving the hardship incident to taxation, the very existence of the government might be placed in the power of a hostile judiciary."⁹¹ With § 6213(a), Congress mandates the issuance of a deficiency notice prior to assessment and collection of tax. No court has authority to abrogate that statutory requirement.

Congress precisely articulated the complex and technical requirements that allow the IRS to assess against taxpayers and take their property.⁹² The Supreme Court consistently and unambiguously holds that technical tax statutes must be strictly construed:⁹³ "When a [tax] statute limits a thing to be done in a particular mode, it includes the negative of any other mode."⁹⁴ It expressly bars the ends the majority reaches here: "Where the taxing measure is clear, of course, there is no place for loose conceptions about the 'equity of the statute.'"⁹⁵ The Supreme Court holds that the majority's approach -- creation of an equitable exception to circumvent Congress's specified exceptions to an otherwise flat ban -- is "little more than overriding Congress' judgment as to when equity requires that there be an exception to the [procedural] bar."⁹⁶

By impermissibly creating judicial, common-law exceptions to the statutory requirement to issue a deficiency notice, the majority limits taxpayer due process protections. While there is no Constitutional right to a pre-assessment, pre-payment forum, there is a Constitutional right to due process in the assessment and collection of tax.⁹⁷

As to procedural due process the Supreme Court is clear and consistent:

The Supreme Court also recognizes taxpayers may freely elect which forum to pursue -- pre-payment or refund.¹⁰² The Supreme Court has long recognized that the lack of a pre-payment remedy does not violate due process if there is a post-payment refund forum for redress.¹⁰³ But, as the dissent explains, the majority's prejudice requirement means taxpayers must prove that pre-payment litigation in the Tax Court "could have resulted in a different outcome" than a refund suit in order to "pay and sue," which restricts taxpayer access to the forum of their choice. And by holding that the failure to issue a deficiency notice was harmless because the taxpayers could have pursued alternative pre-payment remedies, the majority forces taxpayers to choose the pre-payment forum and denies them the "pay and sue" alternative altogether.

Bush and Shelton also had significant, actionable property interests in receiving deficiency notices, particularly before the IRS took their credits. The majority is wrong that a deficiency notice protects only from an IRS "levy or proceeding in court for . . . collection."¹⁰⁴ Section 6213(a) also explicitly states that "no assessment . . . shall be made."

Finally, taxpayers have a significant, actionable property interest in voluntary compliance, which avoids increased interest, penalties, legal fees, additional liens, levies, and damage to their credit ratings, businesses, and standing in the community. The majority's holding that taxpayers must affirmatively and unceasingly fight collection or forfeit their existing right to a pre-assessment forum, violates their Fifth Amendment rights to procedural due process. The majority has carved out exceptions to the ability of taxpayers to reach a pre-assessment, pre-payment forum and limit their ability to "pay and sue" because Bush and Shelton purportedly made "voluntary" payments.¹⁰⁵

As explained by this Court in Rock Island, prior to 1926 there was no effective way for taxpayers to dispute a tax without first paying the liability. The common-law rule of the time was that taxpayers could request pre-payment abatement of tax from the commissioner, but collection was not stayed and there was no provision for appeal or review of abatement denials. The only effective avenue to contest tax liability was to pay and sue. Taxpayers had no right to bring a refund suit unless the tax was collected under duress.¹⁰⁷ In Chesebrough, the Supreme Court summarized the common-law rule -- "taxes voluntarily paid cannot be recovered back, and payments with knowledge and without compulsion are voluntary."¹⁰⁸

The modern Tax Code statutorily abolished that harsh, common-law voluntary payment rule. The Board of Tax Appeals was created to allow taxpayers to petition for pre-assessment, pre-payment relief, which is akin to a request for abatement where collection is stayed and the determination is subject to judicial review. Congress also statutorily abolished the requirement that payment must be made under duress.¹⁰⁹ Now codified at § 7422(b), Congress specifically provided a taxpayer may bring an action for a refund "whether or not such tax . . . has been paid under protest or duress." Modern tax law allows taxpayers to dispute their taxes by pre-assessment, pre-payment petition to the Tax Court or to ""pay and sue" for a refund without regard to the voluntariness of the payment.

The majority opinion is also contrary to the system of orderly compliance that is one of the foundations of modern tax policy and procedure.¹¹⁰ Prior to 1926, the courts discounted self-serving taxpayer protests and held involuntariness could only be proved if the taxpayer was compelled to pay the taxes by immediate process of forcible collection, e.g., lien foreclosure or levy.¹¹¹ As the dissent recognized, under the majority's holding unless taxpayers can show a different outcome in the Tax Court than a refund suit, taxpayers must now fight collection every step of the way.¹¹² The majority essentially re-imposes a duty on taxpayers to resist payment until compelled, without any guidance for how much duress or protest is necessary to establish involuntariness. Just 21 days before Bush was issued, a tax protestor flew his plane into the Austin, Texas IRS building.¹¹³ Since 2000, the Treasury Inspector General for Tax Administration has handled over 1,200 cases of threats or assaults against IRS workers, which resulted in more than 167 indictments and more than 200 convictions.¹¹⁴ It is no one's best interest to create what laymen would perceive as a duty to forcefully resist collection. Moreover, because the Supreme Court has held there is no equitable tolling in tax law,¹¹⁵ it is arguable that under the majority's voluntary payment/harmless error rule taxpayers would also be barred from recovering if taxes are voluntarily paid but IRS errors are discovered after payment. Such a game of "gotcha" would also undermine confidence in an orderly, unbiased system of taxation and collection. The Supreme Court has cautioned about the perceptions of fairness in imposing a harmless error rule.¹¹⁶ The majority's new harmless error rule will likely affect the perception of fairness and equal application of the tax laws.

The government has rejected the harmless error rule here, but as discussed above, the IRS is currently asserting the common-law voluntary payment rule elsewhere.¹¹⁷ If upheld and relied upon by the IRS, the majority's new voluntary payment rule has the potential to mire tax payments and collections and increase taxpayer protests.

• Tax law is law unto itself. There are no equities in tax law. And there is an area of permissible illogic in tax law.¹¹⁸

• Unfortunately, common sense and tax law are rarely even waving acquaintances.¹¹⁹

• Tax law is not based on equity, and arguments of equity have little force.¹²⁰

Moreover, § 2111 is limited to appellate judicial review of judicial determinations, which typically include erroneous evidentiary and other judicial determinations.¹²¹ The majority stretched application of that appellate standard to include the IRS's administrative errors and determinations.¹²²

The Supreme Court has long recognized that a general harmless error rule cannot overcome "a specific command of Congress."¹²³ Nor can general equitable considerations control if the "statute . . . contains a flat ban" on the activity in issue.¹²⁴

Shinseki clarifies that where a complex administrative procedural framework has (i) the statutory words 'take due account' and 'prejudicial error,' and (ii) no internal harmless error provision, then courts apply § 2111's general civil harmless error rule.¹²⁵ Neither required phrase is in the tax code. Instead, § 7522(a) effectively states that the only harmless error for deficiency notices is an "inadequate description." With a few very specialized exceptions (like § 6230(a)(1)), § 6213(b) lists the only times Congress allows the IRS to not send a deficiency notice. The majority's opinion directly conflicts with Shinseki by expanding imposition of § 2111 to a complex administrative procedural framework outside the Supreme Court's narrow parameters.

b. Even If the Majority's New Harmless Error Rule Applies to Tax Cases, It Cannot Apply to Bush and Shelton

To initiate collection proceedings, the IRS assesses and sends a "notice and demand letter."¹²⁷ A § 6303(a) notice and demand letter must (i) be sent within 60 days of assessing, (ii) be mailed to the person's last known address, (iii) state the amount assessed, and (iv) demand payment. Every demand letter sent to Bush and Shelton did so.¹²⁸ Upon assessment and demand, "a lien [attaches] in favor of the United States upon all property and rights to property, whether real or personal, belonging to such person."¹²⁹ The evidence proves the IRS did impose liens on the assets of Bush and Shelton and did demand payment, initiating collection proceedings. These facts are undisputed. Bush and Shelton meet every criteria of the majority's Singleton exemption. Therefore, even the majority's new harmless error rule cannot properly apply to them.

In Singleton "[t]he IRS assessed . . . and demanded immediate payment." The Singletons sold their beach house and partially paid "to forestall lien foreclosure on their primary residence."¹³² They "signed [an installment agreement] under threat of levy," then sued for refund and to enjoin further collection.¹³³ The trial court held a deficiency notice was due, but the installment agreement "waived any objection. . . . [because the Singletons did] not contest that they owe the money ; they dispute only the [IRS's] procedures. . . ."¹³⁴ The Fourth Circuit reversed, holding that a deficiency notice was required as a matter of law.¹³⁵

In Philadelphia the taxpayer waived collection restrictions conditioned only on the assessment's timing.¹³⁶The IRS assessed and demanded payment without regard to that condition. The Seventh Circuit denied an injunction because the taxpayer could not prove irreparable harm.¹³⁷ The IRS then levied. In the subsequent refund suit, the district court held the assessment was illegal because the IRS failed to issue a deficiency notice, but denied relief because the taxpayer "experienced no material prejudice . . . and . . . had obtained the substantive results" of its waiver.¹³⁸ On appeal, the Third Circuit reversed the district court, holding that while equitable considerations may be appropriate in pre-assessment injunction cases, they are entirely inappropriate inpost-assessment cases.¹³⁹ Finally, it held "absence of identifiable prejudice from non-performance [in issuing deficiency notices] does not retroactively cure the illegality of these assessments . . . as assessment that precedes a notice of deficiency is 'forever void and illegal.'"¹⁴⁰

Here the taxpayers agreed to specific affected item adjustments that might or might not result in taxes. They never agreed to specific tax liabilities. To ensure they pay what the majority erroneously assumes they "admittedly owed,"¹⁴¹ it created a common-law, equitable rule that the Third and Fourth Circuits expressly rejected on substantively identical facts.

In Singleton and Philadelphia the taxpayers admitted they otherwise owed the money and sought refunds based solely on IRS procedural errors. Bush and Shelton seek refunds based on IRS procedural errors, but they have never agreed they owe the amounts assessed. If the facts in Singleton and Philadelphia were inadequate to let equity circumvent the plain language of §§ 6212-6213, then the facts here are even less adequate.

When the IRS assessed, Bush and Shelton had pending credits of $6,045.33 and $6,766.91, respectively. The § 6303(a) demand letters told them the IRS had already seized their money.¹⁴² Even if they had affirmatively resisted collection, they could never get a pre-payment CDP hearing for that money. The IRS's failure to issue deficiency notices deprived them of their only pre-assessment right to recover that money.

The Tax Court is an Article I court specifically created for its expertise. The Tax Court rejects the majority's position that CDP rights can replace deficiency rights and, instead, holds a taxpayer's "opportunity in a § 6330 [CDP] proceeding to dispute the underlying tax liability does not cure an assessment made in derogation of his right under § 6213(a) to a deficiency proceeding."¹⁴³ The Tax Court correctly reasons (i) CDP rights are "more circumscribed" than deficiency rights, (ii) Congress enacted the CDP procedures to expand, not narrow, taxpayer rights,¹⁴⁴ and (iii) it would cause internal conflict between CDP provisions, e.g., in the CDP hearing the IRS could never meet its § 6330(c)(1) duty to verify that the taxpayer was given his right to a pre-assessment forum.¹⁴⁵ Consistently, the Tax Court recognizes

Bush and Shelton were within the class of persons entitled to deficiency notices. Before the IRS's assessment deadline, Shelton told the IRS that deficiency notices were required. The IRS rebuked his assertion and failed to issue the notices to either partner. Therefore, the assessments in issue were illegal and the amounts collected must be refunded. 28 U.S.C. § 2111 does not apply to substantive tax issues as a matter of law, and even if it did, it could not relieve the IRS from the consequences of its failures here, because the facts prove that Bush and Shelton fall within the majority's Singleton exception and that the IRS's errors were not harmless because they deprived them of their substantive right to a pre-assessment, pre-payment forum.

The majority's analysis of the § 6231(a)(6) definition of "computational adjustment" should be upheld and its new harmless error rule should be withdrawn.

² [Add:X] refers to Bates-stamped page "X" of the Addendum attached to this brief.

³Singleton v. U.S., 128 F.3d 833, 838 (4^th Cir.1997), reversing 935 F.Supp. 703 (E.D.N.C. 1996) ("Section 6213(a) applies to all assessments. . . .").

⁴Philadelphia & Reading Corp. v. U.S., 944 F.2d 1063, 1073 (3^rd Cir.1991), reversing and remanding 738 F.Supp 143, (D.Del. 1990) (Section 6213(b) "set[s] forth . . . the four specific exceptions to the requirement that a taxpayer receive a notice of deficiency before the IRS can assess or collect taxes . . . . None of the four exceptions permits consideration of the equities. In cases involving statutory construction of enumerated exceptions by Congress to a statutory scheme, the Supreme Court often applies the Latin maxim expressio unius est exclusio alterius. It has explained that "[w]here Congress explicitly enumerates certain exceptions to a general prohibition, additional exceptions are not to be implied, in the absence of a contrary legislative intent." . . . The IRS has failed to suggest any contrary legislative intent here. Indeed, we think the maxim has special force when the statutory scheme is complex, its parts are closely related and, in making important decisions, the persons affected by it depend heavily on the even-handed application of the statute's plain terms. In this case, the district court should not have considered the equities and, based upon them, ruled in favor of the government." Citations and footnote omitted.).

⁵See Bush v. U.S., 599 F.3d 1352, 1367 and n. 3 (2010), concurring, citing U.S. v. Frontone, 383 F.3d 656, 658 (7^th Cir.2004); Clark v. U.S., 63 F.3d 83, 84 n. 1 (1^st Cir.1995); Philadelphia, 944 F.2d at 1072; see also Ulrich v. C.I.R., 585 F.3d 1235, 1236-37 (9^th Cir.2009); Pagonis v. U.S., 575 F.3d 809, 813 (8^th Cir.2009); Keado v. U.S., 853 F.2d 1209, 1211-12 (5^th Cir.1988); Hoyle v. C.I.R., 131 T.C. 197, 205 (2008) ("[T]his Court has held that 'petitioner's opportunity in a § 6330 proceeding to dispute the underlying tax liability does not cure an assessment made in derogation of his right under § 6213(a) to a deficiency proceeding.' . . . If respondent's assessment of petitioner's . . . tax liability was not preceded by a notice of deficiency as required by § 6213(a), the assessment is invalid." Citation omitted.).

⁶ Prior to 1986, § 6213(h)(4) stated:

⁹ For example, their settlements acknowledged that the partnership debt was valid and agreed that their amounts at-risk would be reduced by any portion of that debt they had individually assumed -- clearly a partner-level determination.

¹⁰Bush, 599 F.3d at 1360.

¹¹ Judge Prost disagreed with the majority on both its analysis of "computational adjustment" and its creation of a new harmless error rule. But because she reached the same ultimate outcome, her opinion is technically a concurrence. To make clear that, on the issues addressed in this brief, she did not agree with the majority, Bush and Shelton refer to her opinion as a dissent.

¹² References to [BJApp:X] and [SJApp:X] are to Bates-stamped "X" of the Joint Appendixes filed with this Court in the Bush and Shelton appeals, respectively.

¹³Bush, 599 F.3d at 1361.

¹⁴Bush, 599 F.3d at 1361.

¹⁵Bush, 599 F.3d at 1359-61.

¹⁶ § 6222(a) and (d). [Add:6-7]

¹⁷Bush, 599 F.3d at 1360 and 1368.

¹⁸Bush, 599 F.3d at 1368-70, concurring.

¹⁹ A partner's amount at-risk is classified as an affected item because, in general, the amount a partner is allowed to deduct on his tax return related to a partnership ultimately has two types of elements: (i) partnership items (generally those amounts reported on his Schedule K-1, e.g., the amount his capital contributions, partnership income and debt for which he is personally liable allocated to him from the partnership) and possible limitations on those partnership items imposed by (ii) nonpartnership items (e.g. the possible limitation placed on his amount at-risk, which may be limited by outside "stop loss" agreements or increased for partnership debt not otherwise allocated to him for which he is liable through an assumption of that debt, as here where Bush and Shelton, both limited partners, would not have been liable but for an effective personal assumption of the debt). Similarly, a partner's outside basis in his partnership interest is a potential nonpartnership item that can limit his right to deduct partnership item losses. Jade Trading, LLC v. U.S., 598 F.3d 1372 (Fed.Cir. 2010).

²⁰ Without specifically referencing § 6230(a)(2)(A)(i), the dissent does acknowledge that assessments attributable to affected items which require partner level determinations, while they could be assessed as computational adjustments, would still be subject to the subchapter 63B deficiency notice requirements. Bush, 599 F.3d at 1369, concurring.

²¹Bush, 599 F.3d at 1366, 1368-71, concurring.

²²Bush, 599 F.3d at 1368, concurring.

²³Ventas, Inc. v. U.S., 381 F.3d 1156, 1161 (Fed.Cir. 2004), citing TVA v. Hill, 437 U.S. 153, 188 (1978).

²⁴Philadelphia, 944 F.2d at 1073, citing U.S. v. Smith, 111 S.Ct. 1180, 1185 (1991) and Andrus v. Glover Constr. Co., 446 U.S. 608, 616-17 (1980) ("Where Congress explicitly enumerates certain exceptions to a general prohibition, additional exceptions are not to be implied, in the absence of a contrary legislative intent.").

²⁵IBM v. U.S., 201 F.3d 1367, 1372 (Fed.Cir. 2000); see also In re Mark Industries, 751 F.2d 1219, 1224-25 (Fed.Cir. 1984).

²⁶Carcieri v. Salazar, 129 S.Ct. 1058, 1066-67 (2009), citing Dodd v. U.S., 545 U.S. 353, 359 (2005); Lamie v. U.S. Trustee, 540 U.S. 526, 534 (2004).

²⁷Stenberg v. Carhart, 530 U.S. 914, 942 (2000); Meese v. Keene, 481 U.S. 465,484-485 (1987); Colautti v. Franklin, 439 U.S. 379, 392 n. 10 (1979).

²⁸Sanford's Estate v. C.I.R., 308 U.S. 39, 48 (1939); Badaracco v. C.I.R., 464 U.S. 386, 398 (1984).

²⁹Meese, at 484-85; see also Burgess v. U.S., 128 S.Ct. 1572, 1577 (2008), citing Colautti at 392-393, n. 10.

³⁰AK Steel Corp. v. U.S., 226 F.3d 1361, 1372 (Fed.Cir.2000).

³¹Black v. S.H.H.S., 93 F.3d 781,789 (Fed.Cir.1996), citation omitted.

³²TRW Inc. v. Andrews, 534 U.S. 19, 31 (2001). See also Marathon Oil Co. v. U.S., 374 F.3d 1123, 1141 (Fed.Cir. 2004), citing Freytag v. C.I.R., 501 U.S. 868, 877 (1991) (courts should have "a deep reluctance to interpret a statutory provision so as to render superfluous other provisions in the same enactment") (internal quotations and citations omitted). Great-West Life & Annuity Ins. Co. v. Knudson, 534 U.S. 204, 217-18 (2002) ("It is ... not our job to find reasons for what Congress has plainly done; and it is our job to avoid rendering what Congress has plainly done ... devoid of reason and effect." Emphasis in original).

³³Bush, 599 F.3d at 1361.

³⁴ [BJApp:191 ¶ 1, 194 ¶ 1; SJApp:150 ¶ 1]

³⁵ Specifically, the agreement of no adjustment to partnership items means the reported partnership debt was correct, and the settlements then prohibited the use of that debt as part of the partners' amounts at-risk, whether or not they had personally assumed any part of that debt (which was the basis for including it, since a limited partner could not otherwise include it in their at-risk computation).

³⁶Olson v. U.S., 172 F.3d 1311 (Fed.Cir.1999).

³⁷Bush, 599 F.3d at 1372, concurring. Emphasis in original.

³⁸Olson, 172 F.3d at 1317.

³⁹ [Add:11]

⁴⁰Olson, 172 F.3d at 1318. Emphasis added.

⁴¹Bush, 599 F.3d at 1361.

⁴² Similarly, the dissent errs in interpreting Olson to effectively hold that whether a deficiency can be assessed by "computational adjustment" is not determined by the § 6231(a)(6) definition but by § 6230(a)(2)(A)(i), which excludes "affected items which require partner level determinations" from the § 6230(a)(1) exemption of computational adjustments from the subchapter 63B deficiency requirements. Bush, 599 F.3d at 1372, concurring. By default, the subchapter 63B deficiency procedures apply to all assessments, unless excepted. Section 6230(a)(1) excepts computational adjustments. The only purpose served by § 6230(a)(2)(A)(i) is to impose the subchapter 63B deficiency requirements on assessments that would otherwise be excepted, e.g., that are computational adjustments. In other words, computational adjustments and "affected items which require partner level determinations" are not mutually exclusive.

⁴³Bush, 599 F.3d at 1361.

⁴⁴ [BJApp:191-196 ¶ 1; SJApp:150-152 ¶ 1].

⁴⁵ [BJApp:191-196 ¶¶ 3,4,6,7,8,9, and 14; SJApp:150-152 ¶¶ 3,4,6,7,8,9, and 14].

⁴⁶ [BJApp:191-196 ¶ 2; SJApp:150-152 ¶ 2].

⁴⁷ [BJApp:191-196 ¶ 15; SJApp:150-152 ¶ 15].

⁴⁸ [BJApp:191-196 ¶ 12; SJApp:150-152 ¶ 12].

⁴⁹ [BJApp:191-196 ¶ 18; SJApp:150-152 ¶ 18].

⁵⁰ [BJApp:191-196 ¶ 12 and 19; SJApp:150-152 ¶ 12 and 19].

⁵¹Bush, 599 F.3d at 1372.

⁵² [BJApp:190-196; SJApp:150-152].

⁵³Gingerich v. U.S., 82 Fed.Appx. 35, *4 (Fed.Cir. 2003), unpublished, citing Treaty Pines Inv. Partnership v. C.I.R., 967 F.2d 206, 211 (5^th Cir.1992).

⁵⁴ A year before these settlements were entered, the Court of Federal Claims established that no deficiency notices are required when the IRS and a taxpayer settle on Form 866 closing agreements because those settlements state the dollar amounts of the tax to be assessed. [BJApp:193,196; SJApp:152] Marathon Oil Co. v. U.S., 42 Fed. Cl. 267 (1998), affd. without opinion 215 F.3d 1343 (Fed.Cir. 1999). Here the parties chose not to use Forms 866, but rather to use "specific issues" Forms 906 which did not state the dollar amount of the tax to be assessed and did not contain any waiver of defenses to assessment other than the boilerplate waiver of § 6225(a) restrictions, which are not relevant here. [BJApp:191-196; SJApp:150-152]

⁵⁵ §§ 6214 and 6512(b).

⁵⁶Bush, 599 F.3d at 1360.

⁵⁷Philadelphia, 944 F.2d at 1072-73 and 1076 ("[T]he absence of identifiable prejudice from non-performance does not retroactively cure the illegality of these assessments. As the dissent recognizes, an assessment that precedes a [required deficiency notice] is 'forever void and illegal.' . . . [T]he IRS's assessments were illegal, and equitable considerations cannot avoid strict enforcement of the detailed rules the tax code prescribes for the assessment and collection of federal taxes. Therefore, the taxpayer is entitled to a refund of the amounts it paid. . . ." Quoting the dissent at 1078.)

⁵⁸In re Custom Contractors, LLC v. U.S., 2010 WL 4627655, *2 (Bkrtcy.S.D.Fla. Oct. 5, 2010).

⁵⁹ § 6321. [Add:17; BJApp:285-287; SJApp:153-159].

⁶⁰Id. at *2 ("Florida 'courts are now taking a more liberal view as to whether certain types of taxes are ever in fact voluntarily paid since the urgent and immediate payment of them is compelled in order to avoid the harsh penalties imposed for non payment.' "), quoting Broward County v. Mattel, 397 So.2d 457, 460 (Fla. 4^th DCA 1981) (recognizing that the penalty for non-payment of certain taxes creates "technical or implied duress sufficient to make the payment of such taxes involuntary" even if the taxpayer does not protest at the time of payment).

⁶¹Conn. Nat'l Bank v. Germain, 503 U.S. 249, 253-54 (1992).

⁶²Caminetti v. U.S., 242 U.S. 470, 485 (1917).

⁶³ The plain language of § 6213(a) is mirrored by Congress's unambiguous language in 28 U.S.C. § 1346(a)(1) and 26 U.S.C. § 7422(a). 28 U.S.C. § 1346(a)(1) grants jurisdiction to district courts and the Court of Federal Claims over "[a]ny civil action against the United States for the recovery of any internal-revenue tax alleged to have been erroneously or illegally assessed or collected." [Add:20] Emphasis added. 26 U.S.C. § 7422(a) restricts exercise of that jurisdiction to cases where the taxpayer first files an administrative refund claim. 26 U.S.C. § 7422(a) states, in relevant part:

⁶⁴ The Supreme Court recognizes that "the importance of encouraging voluntary compliance [is a] powerful justification[] not to be disregarded lightly." Raleigh v. Ill. Dept. of Revenue, 530 U.S. 15, 21 (2000). See also Bull v. U.S., 295 U.S. 247, 259-60 (1935) ("But taxes are the lifeblood of government, and their prompt and certain availability an imperious need. . . . In recognition of the fact that erroneous determinations and assessments will inevitably occur, the statutes, in a spirit of fairness, invariably afford the taxpayer an opportunity at some stage to have mistakes rectified. . . . [I]n some instances both administrative relief and redress by an action against the sovereign in one of its courts are permitted methods of restitution of excessive or illegal exaction.").

⁶⁵ [BJApp:212 ¶ 8; SJApp:186 ¶ 2].

⁶⁶ [BJApp: 211-12 ¶ 6; SJApp:186-87 ¶ 5]. The Tax Court has exclusive jurisdiction over § 6404(e) based claims. Hinck v. U.S., 550 U.S. 501 (2007). Therefore, while Bush and Shelton could have asserted that ground for abatement in a Tax Court suit pursuant to a deficiency notice, they were barred from raising it in these refund suits because the Court of Federal Claims has no jurisdiction to determine § 6404(e) claims.

⁶⁷ [BJApp:211 ¶ 5, 212 ¶ 7; SJApp:186 ¶ 4].

⁶⁸ [BJApp:210-11 ¶¶ 2-3; SJApp:187 ¶ 7].

⁶⁹Bush v. U.S., 84 Fed.Cl. 90 (2008); Shelton v. U.S., Nos. 02-1042T, 04-1595T, 2008 WL 4346134, at *2 (Fed.Cl. Sept. 23, 2008).

⁷⁰ TEFRA's legislative history states:

⁷¹Ash v. C. I. R., 96 T.C. 459, 463 (1991).

⁷²U.S. v. Haggar Apparel Co., 526 U.S. 380, 394 (1999) (the "expertise of the [Article I] Tax Court, guides it in making complex determinations in a specialized area of the law").

⁷³ The dissent's opening statement might more accurately be stated as:

⁷⁴ [BJApp:192 ¶ 19; SJApp:151 ¶ 19].

⁷⁵ See Plaintiff's Exhibit 5 at Bates-stamped page 9 attached to the Plaintiffs' Proposed Findings of Uncontroverted Fact with Respect to His Motion for Summary Judgment in the court below at #02-1041 document 36.

⁷⁶Philadelphia, 944 F.2d at 1072-73 ("Substantial performance or the absence of identifiable prejudice from non-performance does not retroactively cure the illegality of these assessments. . . . Since the applicable statute of limitations on assessment has long since expired, it is also apparent that it is now too late to make valid assessments. As a result, the IRS cannot reassess these taxes even though the record shows the taxpayer was willing to concede they were due.").

⁷⁷ See §§ 6229 and 6501. Global Fund v. U.S., 481 F.3d 1351, 1353-55 (Fed.Cir. 2007); see also Curr-Spec Partners, L.P. v. C.I.R., 579 F.3d 391, 396-97, 399 (5^th Cir. 2009).

⁷⁸ §§ 6229(f) and 6231(b)(1)(C). [Add:9,14] [BJApp:193,196; SJApp:152].

⁷⁹Philadelphia, 944 F.2d at 1072-73 and 1076.

⁸⁰Singleton, 128 F.3d at 837 (holding invalid collection of tax due absent issuance of a deficiency notice); Philadelphia, 944 F.2d at 1069-70 and 1076 (granting a refund for taxes paid as well as overpayments where IRS illegally collected taxes by levy without issuing a required deficiency notice).

⁸¹ §§ 6213(a) and 7422(b); Philadelphia, 944 F.2d at 1072-73 and 1076. See also the judgments entered at document #36 in Singleton (E.D.N.C. #5:95-cv-15) (judgment for the Singletons of $228,354.65, plus interest, plus costs) and at document #41 in Philadelphia (D.Del. #1:83-cv-823).

⁸² The only exception ever asserted in these cases is the doctrine of Lewis v. Reynolds, 284 U.S. 281 (1932) raised by the government for the first time in the combined Appellee's Petition[s] for Rehearing at Entry 43 in #2009-5008 (Bush) and Entry 47 in #2009-5009 (Shelton). But Bush and Shelton have shown that as a matter of law the doctrine of Lewis v. Reynolds cannot apply to their facts. See pp.11-15 of the Response to the Appellee's Petition for Rehearing filed in Shelton and pp. 11-15 of the Response to the Appellee's Petition for Rehearing filed in Bush. Here, the government sought to abuse Lewis in exactly the way it had assured the Supreme Court it would never do -- to collect an illegal assessment and deprive taxpayers of their statutory right to a deficiency notice. See the Brief for the Respondent [IRS] filed December 2, 1931 in Lewis v. Reynolds, No. 115, 1931 WL 32378 *17, *22-3. This Court denied the government's petition for rehearing and none of the Court's questions for en banc briefing implicate the doctrine of Lewis v. Reynolds, e.g., that doctrine does not entitle a taxpayer to a refund under any other section of the I.R.C.

⁸³ [BJApp:285-87; SJApp:153-59].

⁸⁴ Theoretically, amounts collected on invalid assessments may have a much longer period for claiming a refund, depending on the circumstances, e.g., if they are deemed cash bonds. N.Y.Life Ins. Co. v. U.S. 118 F3d 1553 (Fed.Cir. 1997). But that is an issue for another day.

⁸⁵ The majority misapprehended the facts. Both Bush and Shelton had credits pending with the IRS at the time of the illegal assessments which were seized without prior notice. [BJApp:285; SJApp:153]. The remaining liability was remitted under duress after collection proceedings were initiated, liens were placed on their property, and demand letters were sent and received containing threats of additional penalties and interest. § 6321. [BJApp:285-287,289-293; SJApp:153-179].

⁸⁶ Jeremiah Coder, Did the Federal Circuit Just Issue Another Murphy?, 127 Tax Notes 143 (Apr. 12, 2010); Ellen Seiler Brody, The Requirement for a Deficiency Notice -- When an Absolute Provision Is Not Always Absolute, Journal of Taxation 68-73 (Aug., 2010).

⁸⁷ See pp. 11-14 of the combined Appellee's Petition[s] for Rehearing at Entry 43 in #2009-5008 (Bush) and Entry 47 in #2009-5009 (Shelton).

⁸⁸Bush, 599 F.3d at 1374, concurring.

⁸⁹Elings v. C.I.R., 324 F.3d 1110 (9^th Cir. 2003); Smith v. C.I.R., 275 F.3d 912 (10^th Cir. 2001).

⁹⁰Bush, 599 F.3d at 1367, concurring.

⁹¹Cheatham v. U.S., 92 U.S. 85, 88-89 (1875).

⁹²U.S. v. Dalm, 494 U.S. 596, 608 (1990); Carey v. Piphus, 435 U.S. 247, 266 (1978) (holding deprivation of a party's procedural due process rights is actionable, even without injury); Philadelphia, 944 F.3d at 1074 (The "rule requiring assessments, ... has real consequences. If it is followed, the government can take from citizens . . . part or all of their worldly goods . . . without judicial intervention. If those goods can also be taken though the government does not follow the rule on assessment, its power over the property of its citizens is unbounded unless the judiciary acts to restrain it. The precision and complexity of our tax laws with respect to assessment, levy and collection, together with cases too numerous to mention, bespeak Congress's intent to keep the Article III judiciary out of the administration of the tax code except to enforce and monitor the precise rules Congress has written to control the powers of the tax collector and protect the public fisc.").

⁹³Helvering v. NW Steel Rolling Mills, Inc., 311 U.S. 46, 49 (1940), and citations therein; Deputy v. Du Pont, 308 U.S. 488, 493 (1940).

⁹⁴Botany Worsted Mills v. U.S., 278 U.S. 282, 289 (1929), and citations therein.

⁹⁵Lewyt Corp. v. C.I.R., 349 U.S. 237, 249 (1955).

⁹⁶Dalm, 494 U.S. at 610.

⁹⁷Cheatham, 92 U.S. at 88-89; Phillips v. C.I.R., 283 U.S. 589, 595 (1931).

⁹⁸Carey v. Piphus, 435 U.S. 247, 266, 98 S.Ct. 1042, 55 L.Ed.2d 252 (1978), citations omitted. See also Hughes v. Rowe, 449 U.S. 5, at 13, n. 12, 101 S.Ct. 173, 66 L.Ed.2d 163 (1980) ("Finally, even if the subsequent hearing accorded petitioner minimized or eliminated any compensable harm resulting from the initial denial of procedural safeguards, his constitutional claim is nonetheless actionable.").

⁹⁹Bush, 599 F.3d at 1374.

¹⁰⁰Flora, 362 U.S. at 158-163.

¹⁰¹Flora, 362 U.S. at 160 n.21.

¹⁰²Flora v. U.S., 362 U.S. 145, 163 (1960).

¹⁰³Cheatham, 92 U.S. at 88-89; Phillips, 283 U.S. at 595.

¹⁰⁴Bush, 599 F3d at 1363.

¹⁰⁵Bush, 599 F.3d at 1363, 1366, and 1373 fn. 8, concurring.

¹⁰⁶Bush, 599 F.3d at 1373 fn. 8, concurring.

¹⁰⁷Rock Island, A & L.R. Co. v. U.S., 54 Ct.Cl. 22, 1918 WL 1025. *7-*9 (1918).

¹⁰⁸Chesebrough v. U.S., 192 U.S. 253 (1904).

¹⁰⁹Phillips, 283 U.S. at 597-89; U.S. v. S.F. Scott & Sons, 69 F.2d 728 (1^st Cir. 1934); Collins v. U. S., 1975 WL 3598 (Ct.Cl. 1975), per curium.

¹¹⁰Cheatham, 92 U.S. at 89 (1875) ("It is essential to the honor and orderly conduct of the government that its taxes should be promptly paid, and drawbacks speedily adjusted; . . . ."); "Our income tax system is primarily a self-reporting and self-assessment one. It is 'based upon voluntary assessment and payment, not upon distraint.' " Laing v. U.S., 423 U.S. 161 (1976), citing Flora, 362 U.S. at 176 and Helvering v. Mitchell, 303 U.S. 391, 399 (1938).

¹¹¹Chesebrough, supra, citing Union Pac. R.Co. v. Dodge County C.I.R., 98 U.S. 541, 544-5 (1878). As discussed above, it arguable that all taxes are paid under duress given the consequences that automatically attach to non-payment. But the common-law voluntary payment rule is limited to actual forcible collection actions in order to establish involuntariness.

¹¹²Bush, 599 F.3d at 1373 n. 8, concurring.

¹¹³ Michael Brick, "Man Crashes Plane Into Texas I.R.S. Office," N.Y.Times, February 18, 2010, http://www.nytimes.com/2010/02/19/us/19crash.html?_r=1

¹¹⁴ Ed O'Keefe, "Threats Continue for IRS Workers, Families," Washington Post, December 9, 2010, http://www.washingtonpost.com/wp-dyn/content/article/2010/12/09/AR2010120905959.html.

¹¹⁵U.S. v. Brockamp, 519 U.S. 347, 348 (1997).

¹¹⁶Shinseki v. Sanders, ___ U.S. ___, 129 S.Ct. at 1696, 1707 (2009).

¹¹⁷In re Custom Contractors, supra.

¹¹⁸Exxon Corp. v. U.S., 88 F.3d 968, 973 (Fed.Cir. 1996), quoting U.S. v. Henderson Clay Prods., 324 F.2d 7, 12 (5^th Cir.1963).

¹¹⁹Skoglund v. U.S., 230 Ct.Cl. 833 (1982).

¹²⁰Polos v. U.S., 231 Ct.Cl. 929 (1982), quoting C.I.R. v. Kowalski, 434 U.S. 77, 95 (1977).

¹²¹Kotteakos v. U.S., 328 U.S. 750, 765 (1946); Malek v. Fed. Ins. Co., 994 F.2d 49, 55 (2d Cir 1993).

¹²² While § 2111 has been applied with respect to general civil litigation procedure in tax cases, it has not been used with respect to the substance of the tax issue. See e.g.,Cree v. Flores, 157 F.3d 762 (9^th Cir. 1998) (applying § 2111 with respect to introduction of evidence).

¹²³Kotteakos, 328 U.S. at 764-65.

¹²⁴Weinberger v. Romero-Barcelo, 456 U.S. 305, 314 (1982).

¹²⁵ In Shinseki, the Supreme Court addressed, within the framework of 38 U.S.C. § 7261(b)(2), which harmless error rule this Court must follow in a Veteran's Court appeal: (i) one devised by the Veteran's Court based on 38 U.S.C. § 5103(a), or (ii) 28 U.S.C. § 2111's general civil rule. Id. at 1701-04. It held this Court must follow 28 U.S.C. § 2111 because 38 U.S.C. § 7261(b)(2) requires that the Veteran's Court "take due account of the rule of prejudicial error." It noted that 28 U.S.C. § 2111 also applies to the APA because "Congress used the same words in" 5 U.S.C. § 706. Id.

¹²⁶Bush, 599 F.3d at 1365.

¹²⁷ §§ 6201, 6213(c), 6303(a). [Add:4,15] Bush, 599 F.3d at 1354.

¹²⁸ [BJApp:285-287; SJApp:153-159]

¹²⁹ § 6321. [Add:17]. U.S. v. Speers, 382 U.S. 266, 267 (1965).

¹³⁰Bush, 599 F.3d at 1367, concurring. Rather than "nonnegotiable," a more accurate word would be "nondiscretionary." Under § 6213(f) a taxpayer may waive the § 6213(a) deficiency notice requirement, but only in "a signed notice in writing filed with the Secretary. . . ." Neither Bush nor Shelton ever gave such a waiver. In fact, the record shows that before the assessment deadline Shelton told the IRS that deficiency notices were required. [SJApp:315]

¹³¹E.g., Singleton, 128 F.3d at 837; Philadelphia, 944 F.3d at 1069-70.

¹³²Singleton, 128 F.3d at 834.

¹³³Singleton, 935 F.Supp. at 705, 708.

¹³⁴Singleton, 935 F.Supp. at 709. By comparison, Bush and Shelton did assert the IRS assessments were incorrect and excessive, though they later abandoned those claims to proceed with this appeal.

¹³⁵Singleton, 128 F.3d at 839.

¹³⁶Philadelphia, 944 F.3d at 1066-67.

¹³⁷Id. at 1069.

¹³⁸Id.

¹³⁹Id. at 1072-73.

¹⁴⁰Id. at 1072-73, quoting the dissent.

¹⁴¹Bush, 599 F.3d at 1354.

¹⁴² [BJApp:285; SJApp:153]

¹⁴³Hoyle, 131 T.C. at 205, quoting Freije v. C.I.R., 125 T.C. 14, 36 (2005).

¹⁴⁴ See S. Rept. 105-174, at 67 (1998), 1998-3 C.B. 537, 603.

¹⁴⁵Freije, 125 T.C. at 36.

¹⁴⁶Looper v. C.I.R., 73 T.C. 690, 695 (1980).