Today we welcome Patrick Thomas who runs the tax clinic at Notre Dame Law School and who is one of the four designated order bloggers for us. Patrick discusses three designated orders today in depth. The first one he discusses also implicates IRC 6304 and raises the importance of contacting the taxpayer’s representative in collection cases where the statute requires that the IRS deal with the authorized representative as part of the fair tax collection practices provisions. By giving the IRS a POA in a collection case, the taxpayer should expect that the IRS will only deal with the individual on the POA.
In addition to the discussion of designated orders here, I point the readers to the comments section of the blog where Carl Smith and Bob Kamman have been keeping up with the Tax Court’s heavy activity in the order area following its decision in Graev. Last Friday I blogged about the first designated orders coming out following the Graev decision. Many more designated and undesignated orders regarding pending deficiency cases with penalty issues. Go to the comment section of the blog for updates or go to the orders tab at Tax Court web site. Designated orders are a hot item this holiday season. Keith
While talk of tax reform abounds, the Tax Court continues its designated orders apace. We had six in the last week, three of which will be discussed here. A routine order from Judge Jacobs is here and an order regarding deductible mileage and travel expenses from Judge Carluzzo appears here.
We’ve also had a significant milestone here at Designated Orders HQ: a designated order of our own! One of our fellow contributors, Caleb Smith, is counsel of record in Wilson v. C.I.R., which was adjudicated in a bench opinion from Judge Buch. While the opinion itself is fairly sparse, it should remind readers (particularly newer clinicians) that cases can be won on credible testimony alone.
Caleb notes that all credit for the successful resolution of the case goes to the student attorney who handled the matter. Judge Buch also recognizes the “excellent presentation of the case” on the parts of both attorneys.
Dkt. # 12007-16L, Dicker v. C.I.R. (Order Here)
This order from Judge Leyden is the latest installment in the sordid tale of Adrian Dicker, a former partner at BDO in New York, who in 2009 pleaded guilty to conspiracy to defraud the United States in selling tax shelter transactions. For some reason, his sentencing did not occur until 2014, at which time the district court ordered criminal restitution for the tax years in question, 1998 and 1999. The Service assessed the criminal restitution in 2015 and filed a Notice of Federal Tax Lien with regards to those assessments later that year. Mr. Dicker timely requested a CDP hearing, asking that the Service follow the lead of the District Court, which had ordered a $300 per month payment plan.
The main issue in this order concerns whether Mr. Dicker was given a CDP hearing under section 6320. At the end of the day, the CDP officer upheld the NFTL because he did not receive a timely response from Mr. Dicker or his POA. A review of the timeline is helpful here:
- November 2015: Mr. Dicker timely files a CDP request, noting that the attorney in his criminal case, Laura Gavioli, “has a Power of Attorney in place” and requesting that “all correspondence … be copied to her.” He also purported to grant the Service authority through his letter to speak with his probation officer. Mr. Dicker later argues, essentially, that he viewed Ms. Gavioli only as a facilitator of the hearing, and someone with relevant information.
- March 2, 2016: The settlement officer sends a letter to Mr. Dicker, setting the hearing for March 24, 2016. The letter requested a Form 433-A.
- March 16, 2016: The settlement officer and Ms. Gavioli speak on the phone. She also sends the SO a Form 2848 and a letter requesting a telephonic meeting between the SO and his probation officer. Neither the SO nor Ms. Gavioli makes a record of the conversation’s substance.
- March 24 – April 6, 2016: The SO attempts to contact Ms. Gavioli six times, leaving voicemail messages.
- April 6, 2016: The SO contacts Mr. Dicker and informs him that he’s been unable to contact Ms. Gavioli. Mr. Dicker tells the SO that he’ll contact Ms. Gavioli, and have her contact him as soon as possible.
- April 8 & 12 2016: The SO attempts to contact Ms. Gavioli again, leaving voicemail messages. On the 12th, he informed her via voicemail that he was issuing a Notice of Determination sustaining the NFTL.
- April 25, 2016: The SO issues the Notice of Determination, which upholds the NFTL due to Mr. Dicker not providing a Form 433-A.
In the Tax Court, the Service moved for summary judgment, arguing that the SO did not abuse his discretion in upholding the NFTL, because neither the petitioner nor his POA provided a Form 433-A. Petitioner moved to remand the case to Appeals, arguing that he never received a CDP hearing, as the statute requires, and that the purported POA, Ms. Gavioli, wasn’t his POA for purposes of the CDP hearing.
Judge Leyden buys the petitioner’s argument—at least for purposes of the motion for summary judgment. A reasonable inference could be made that Ms. Gavioli was only petitioner’s counsel for his criminal tax proceeding—not for the CDP hearing. Rather, Ms. Gavioli (according to her affidavit) only needed to provide relevant information to the SO, which could most expeditiously be accomplished by filing a Form 2848. As practitioners know, the Service is loathe to talk to anyone about a taxpayer’s account absent an active Form 2848 or 8821. Since Ms. Gavioli presumably is an attorney, she filed a Form 2848. Because the Service didn’t show undisputed material facts indicating that a CDP hearing was held with the petitioner’s representative, Judge Leyden denies summary judgment on this basis.
The Service also argues that telephonic communication with the taxpayer, followed by non-receipt of a Form 433-A, was independently sufficient to constitute a CDP hearing. However, petitioner only had one phone call with the SO—and importantly for Judge Leyden, the SO didn’t subsequently call petitioner when he continued to experience problems contacting Ms. Gavioli. The SO could have attempted to hold a CDP hearing with petitioner directly, but did not. Additionally, petitioner stated that his understanding of the March 16 call was that all future deadlines would be “waived and rescheduled,” so as to allow for a conversation between the SO, Ms. Gavioli, and petitioner’s probation officer.
This case presents a unique assortment of disputed facts, which is why I suspect Judge Leyden falls on the side of allowing more facts to potentially come out in a hearing. The facts established indeed do not seem appropriate for issuance of summary judgment. Accordingly, Judge Leyden denies the summary judgment motion, and allows respondent to supplement his response to the motion to remand in light of her order.
However, I think the petitioner isn’t out of the woods quite yet; if the court ultimately finds that Ms. Gavioli was petitioner’s representative in the CDP hearing—a reasonable conclusion given a Form 2848 was submitted to the SO—the arguments available to him become much more limited. It will be helpful that Ms. Gavioli had particularly difficult personal circumstances that caused her unavailability during that time—though that wasn’t communicated to the SO.
My advice to criminal tax counsel would be to appropriately limit a Form 2848 to that criminal representation—if that’s even necessary, as one could simply enter an appearance in the criminal tax case. I think a Form 8821 may have been more useful here, as that allows for information flow between the Service and another individual, without suggesting to the Service that the individual represents the taxpayer. If Ms. Gavioli’s role was limited to providing useful information, this would have been a safer option. If it wasn’t, then Mr. Dicker is in trouble.
Dkt. #8884-13, Soleimani v. C.I.R. (Order Here)
Now this was a page turner. The crux of this deficiency case is a disputed long-term capital loss of over $5.5 million, stemming from real property in Iran alleged seized by the Iranian government. To prove the loss, petitioners submitted three documents at trial: (1) a deed registration, (2) a declaration from the Justice Administration of the Iranian government, and (3) a letter from a Mr. Soltanpour—who allegedly procured the first two documents—to an attorney in petitioner’s counsel’s office,.
In a previous order, Judge Gale identified a number of discrepancies between the documents and the Court’s own review of maps of Tehran. He ordered the petitioners to address the inconsistencies; the petitioners did so through submitting a supplemental expert report. But they neglected to follow Rule 143(g) in so doing; thus the Court had no opportunity to qualify the expert and respondent had no opportunity to cross examine him. In response, the Court held a call with petitioner’s and respondent’s counsel, and agreed to allow respondent to hire an expert to prepare his own report, as well as assist in rebuttal of petitioner’s expert and his report.
Respondent’s expert submitted a doozy of a report. It concluded that the deed registration and judicial declaration were forgeries, and further that Mr. Soltanpour did not exist. Eventually, petitioner’s counsel also conceded that Mr. Soltanpour did not exist (though was sure to note that counsel didn’t become aware of this until after reviewing the respondent’s expert report). A second trial was held this past August, where both experts were qualified and both reports submitted. At the end of trial, respondent orally moved under Rule 41(b)(1) to conform the pleadings to the evidence, such that a fraud penalty under section 6663(b) could be asserted.
The desire to further punish petitioner is understandable, given respondent’s expert’s conclusion; however, this is a highly unusual maneuver, as Judge Gale’s order shows. Ordinarily, a fraud penalty is asserted in a notice of deficiency, though Chief Counsel certainly can assert a fraud penalty in its Answer. Further, respondent could have amended its Answer under Rule 41(a) within 30 days after service.
However, after the pleadings are closed, a pleading may be amended only by leave of the court. Given that this matter just held its second trial session, the court would understandably be loathe to amend the pleadings, which were filed in 2013.
But under Rule 41(b)(1), the court may allow amendment of pleadings to conform to evidence on issues tried by consent of the parties. The moving party must first show that the issue raised was indeed tried by consent of the parties. Given that, the court then looks at (1) whether an excuse for the delay exists, and (2) whether the other party would suffer unfair prejudice, surprise or disadvantage if the motion were granted.
Respondent attempts to shoehorn this situation into Rule 41(b)(1), but Judge Gale isn’t having any of it given the late stage of these proceedings. First, respondent knew about the purportedly forged nature of the documents much earlier—prior to trial (or at least, the second trial in this case). So, Judge Gale implies, they should have filed this motion at that time. More importantly, petitioner wasn’t afforded the opportunity to receive notice of and an opportunity to defend against imposition of the fraud penalty—which goes, I think, to both the issue of whether the fraud issue was tried with consent of the parties, along with the unfair surprise element. Judge Gale notes that he himself may have asked additional questions of the witnesses, were he on notice that the fraud penalty was an issue in the case.
While I think the ultimate conclusion is fair, I find myself wanting a bit more from this order. There seems only to be a discussion of the fact that this motion is unprecedented, untimely, and surprising. A lack of precedent doesn’t strike me as persuasive, given the uniqueness of this situation. Further, this motion isn’t really untimely, given that all Rule 41(b)(1) motions necessarily occur post-trial. And finally, given that the issues of unfair surprise and implied consent to try an issue effectively dovetail with each other, I think it would have been helpful in this order to see more development of how the issues raised at trial did not show that petitioner didn’t impliedly consent to try the fraud penalty issue. But because a Rule 41 motion lies within the discretion of the Court, I don’t think respondent’s counsel can disturb this ruling with an appeal.
Dkt. # 2003-17S, Levinson v. C.I.R. (Order Here)
Eventually, I’d like to produce a statistical summary of the designated orders that we’ve seen in our now nearly 7 months of coverage. A small preview: Judge Carluzzo currently has, with his two orders this week, produced the third highest number of designated orders of any Tax Court judge, at 29 since 4/14/2017.
Judge Carluzzo’s opinion this week comes from a fairly simple underreporting case that involves the section 6662(a) penalty. The Petitioner didn’t include IRA income or dividend income on his original return; because of that, the Service sent him a Notice of Deficiency, which also included a computational adjustment to his Social Security income. At trial, Petitioner didn’t appear, but did submit a statement. In that statement, Petitioner didn’t mention the dividend income, and indicated that, in “good faith”, he intended to roll over funds from his old IRA to a new IRA, but never did so.
The only real issue here is the section 6662(a) penalty. Judge Carluzzo overrules the imposition of the penalty and comments on the supervisory approval requirement of section 6751. In particular, the government didn’t introduce any evidence of supervisory approval, and instead argued that it wasn’t necessary from them to comply with section 6751. The substantial understatement penalty under section 6662(b)(2), the Service argues, is “automatically calculated through electronic means” under section 6751(b)(2)(B). Carluzzo questions the Service’s position (“We’re not so sure that respondent is correctly construing that exception…”), but ultimately finds that the petitioner acted in good faith relying on petitioner’s statement submitted in the record. Apparently, IRS counsel didn’t provide any evidence pushing the other way, and that’s enough for Judge Carluzzo.