Today we arrive at Part Three of this week’s bumper crop of Designated Orders. Patrick Thomas of Notre Dame Law School takes us through the finish line with several interesting orders, including one in which a taxpayer’s credible testimony defeated the presumption of receipt of a Notice of Deficiency. Christine
Odds and Ends
Docket No. 1395-16L, Bhambra v. C.I.R. (Order Here)
While mailing the Notice of Deficiency to a taxpayer’s last known address is enough for the Service to assess a tax, the taxpayer may still challenge the underlying liability in the Tax Court if they never received the Notice. Therefore, to avoid subsequent litigation, the Service must go to some lengths to ensure that taxpayers receive the Notice.
In Bhambra, Judge Halpern grants petitioner’s motion to remand this CDP case to Appeals, to consider his challenge to the civil fraud penalty under section 6663. Originally, the Service sent a Notice to the taxpayer’s last known address; this valid notice allowed the Service to assess tax after the taxpayer didn’t file a petition in Tax Court. But at this time, Mr. Bhambra was incarcerated; and his wife wasn’t living at this address any longer. The Service, knowing at least the former, sent a Notice of Deficiency to the husband’s prison.
Both Mr. and Mrs. Bhambra testified that they didn’t receive the Notice; particularly, Mr. Bhambra testified about the prison mail system, and the heightened potential for non-receipt of mail. Notwithstanding Mr. Bhambra’s tax evasion conviction under section 7601(a), Judge Halpern found both parties credible. While the Service’s introduction of the Notice into evidence creates a presumption that its addressee received it, this presumption is rebuttable—and here, was rebutted by the Bhambras’ credible testimony. Because the Service didn’t introduce any further evidence in rebuttal, Judge Halpern found that petitioner didn’t receive the Notice and could challenge the underlying 6663 penalty in Appeals (and, if we’re being honest, eventually again before Judge Halpern).
Docket No. 16575-16W, Insinga v. C.I.R. (Order Here)
This an odd situation. In this whistleblower case, petitioner filed a motion to dismiss their own case. The Tax Court has previously ruled that, unlike in deficiency proceedings, the Court may dismiss whistleblower cases on a motion from a petitioner. See Jacobsen v. Commissioner, 148 T.C. 68 (2017).
However, petitioner desired that the case be dismissed “without prejudice.” Such a dismissal is technically permissible; there is no Tax Court rule governing whether a case is dismissed with or without prejudice. So, Judge Gustafson relies on Federal Rule of Civil Procedure 1(b), which states that dismissals are generally without prejudice.
Yet as Judge Gustafson notes, Tax Court cases are practically dismissed with prejudice, given the timing deadlines that run with essentially every Service notice that provides the Court jurisdiction to hear a case. Indeed, in this case, section 7623(b)(4) requires a petition to the Tax Court within 30 days of a notice denying an award for providing information on tax noncompliance to the Service. Because it is now far beyond 30 days after the notice in question, Mr. Insinga couldn’t petition the Court again based on this notice. I speculate that because of this reality, Respondent objected to petitioner’s motion, after learning that petitioner wished to retain the option to litigate this issue in the future.
There is some distance, however, between dismissal in the whistleblower context and, for example, CDP context. Here, it’s possible that petitioner could file a new request for an award under the same or similar facts, and then petition the Court for review of the Service’s denial of that request. Judge Gustafson further notes that even a dismissal with prejudice may not prevent litigation of such a subsequent claim. At first blush, there doesn’t seem to be any statute or judicial doctrine that would prevent such use (in my view) of duplicative administrative and judicial resources.
Because Judge Gustafson wants to ensure that both petitioner and respondent are fully understanding the consequences of a dismissal in this matter, he orders both parties to reply to the order.
Docket No. 4949-10, James Coffey v. C.I.R. (Order Here)
The Coffey cases actually had two separate orders this week. (The other was the topic of Part Two of this week’s Designated Order posts.) Originally, the Court dismissed the cases for lack of jurisdiction in an order on January 29, 2018. The Court realized, however, that it didn’t say anything about why the case was dismissed for lack of jurisdiction (i.e., that the Notice of Deficiency was issued beyond the statute of limitations on assessment). So, Chief Judge Marvel issued an order clarifying that no deficiency was due for 2003 or 2004.
That was not good enough for Respondent. The Service filed a motion to vacate that order, and instead grant Petitioner’s motion for summary judgment. Its argument was not that Respondent should win the case (as in the motion for reconsideration, above), but rather that the Court improperly characterized the reasons for Petitioner winning the case. In this case, Respondent argues, “the statute of limitations is an affirmative defense, not a jurisdictional bar to suit resulting in a dismissal.”
At first, I was quite confused. In the cases I handle, the statute of limitations is ordinarily a defense only where the Service issues an invalid Notice of Deficiency (because, for example, it was not sent to the Petitioner’s last known address and the Petitioner otherwise didn’t receive the Notice in sufficient time to timely petition the Tax Court). When we discover this, the time for filing a Tax Court petition has long passed and the taxpayer is likely in IRS Collections. The procedure to resolve this issue, as many practitioners know, is to (1) file a Tax Court petition, albeit late, and then (2) file a motion to dismiss for lack of jurisdiction, on the basis that the Notice was invalid, and therefore didn’t toll the assessment statute of limitations or provide the necessary prerequisite to assessment (or collection). The Service follows with their own jurisdictional motion, arguing that the Court lacks jurisdiction due to an untimely petition. The Court then determines whether the Notice was properly sent.
In this case, the Service properly issued the Notice. So it wasn’t “invalid”, like Notices in the situation above. It was simply late, and so regardless of any tolling that took place, the statute had already run before the Notice was issued.
In usual cases, the Service simply doesn’t blow its statute like this. And so, the schema for myself, practitioners, and Tax Court judges alike in a statute of limitations case is one of a jurisdictional decision. It seems the Tax Court fell into that trap here, but Respondent’s eagle-eyed attorney noticed the issue and Judge Holmes swiftly corrected it. It might have helped practitioners (or at least, this practitioner) to include, perhaps in a footnote, an explanation for the confusion.
We’ve previously blogged about the litigation-heavy Murfam case here and here. The trial in Murfam is finally over, but before trial began Judge Gustafson disposed of another flurry of motions during this week. He issued four orders, which resolved multiple motions in limine regarding expert witnesses and reports, along with Respondent’s motion to quash a subpoena against a Chief Counsel attorney. Additionally, on the Court’s own motion, and keeping with the tight ship that Judge Gustafson has been running during this litigation, he refused to let the parties expand the time for trial beyond one week.
The motion in limine disputes centered around the fact that Petitioner’s expert report was prepared by multiple authors. This creates an issue during cross examination of the expert, because certain authors may not have drafted certain sections of the report, causing confusion and potentially duplicative testimony. As noted, Judge Gustafson has no time for duplicative testimony. Eventually, it seems that only one author was the “principal expert” on the report; if this individual were also the principal witness, all would be well (as long as the other witnesses were made available for testimony).
Regarding the motion to quash, it seems Petitioner desired Respondent’s documents regarding compliance with section 6751(b)(1) and Graev, but didn’t timely file a request for production of documents under Rule 72. Instead, Petitioner subpoenaed the supervising IRS attorney, requiring the attorney to these documents to trial. Judge Gustafson granted the motion to quash, not allowing Petitioner to circumvent the Rule 72 timing requirements. While a subpoena could be necessary to compel testimony, Respondent already listed the supervising attorney as a witness; thus, no subpoena was necessary. Finally, Judge Gustafson strongly suggested to the parties that they resolve the 6751 issue outside of trial.