When a court issues a ruling a party does not like, a “mistaken” ruling, the party has the chance to ask the court to reconsider the error of its ways. I have not done an empirical study regarding the success of motions for reconsideration but I suspect that this particular motion has a very low success rate. That, of course, does not deter us because as lawyers and competitive spirits we know we are right and that if the court would just think correctly it would see that it erred.
I previously posted on the case of Senyszyn v. Commissioner, 146 T.C. No. 9 (2016) in which the Tax Court declined to apply collateral estoppel to hold the petitioner liable for any tax liability in a case in which the petitioner had pled guilty to a criminal tax violation of tax evasion under I.R.C. 7201 – the most serious of all of the tax crimes. In that post I noted that the case was unusual both in the facts and the outcome. The IRS disliked the opinion so much that it filed a motion for reconsideration. As with the vast majority of motions for reconsideration, the Tax Court denied the motion in an opinion issued by the Judge Halpern on July 21, 2016. Senyszyn v. Commissioner, TC Memo 2016-137. In this post I will talk about making motions for reconsideration and about the opinion the Tax Court just issued upholding its prior opinion in this case. My discussion of motions for reconsideration will be more about what to consider and less about the technical requirements in the rules. We have blogged previously on such motions here and here.
Jack Townsend has also blogged on the motion for reconsideration on his Federal Tax Crimes blog. As usual, he is much quicker than us to post on a case and he provides insights that we miss.
About 35 years ago I represented the IRS in a small tax case calendar in Roanoke, Virginia. The calendar was memorable to me because in one day Bill Ringuette, the other Chief Counsel attorney, and I tried three essentially similar cases involving the tax ramifications of divorce. It is not unusual to have divorce proceedings spill over into Tax Court where the divorce lawyers do not do a good job of wrapping up the tax issues or the parties simply feel the need to keep fighting about something. What was unusual about this day was not only that we had three such cases but that each case represented different strata of the economic ladder. One couple was economically disadvantaged, one was middle class and one was clearly approaching 1% status. As I recall we tried them in the order of their economic status with the economically disadvantaged couple going first.
Bill was representing the government in the first case. The courtroom is really not designed well for these type cases because there are sometimes three parties instead of two. If the government stakes out its normal table that leaves the “happy” couple to sit together at petitioners table. In many circumstances this is not the ideal configuration. It was not ideal in this case and the ability of the petitioners to understand the case was not ideal either. This case was tried in a time before tax clinics came to Virginia. So, the judge asked me to sit between the couple and to provide them with assistance. Of course I complied with his request although I found the situation extremely awkward both from the perspective of siting between two warring parties and providing assistance to the opposing party. Nonetheless, we got through the case and next up was the middle class case.
This case was mine and the petitioner here was the ex-husband. In preparing for the case I had tracked down his ex-wife who happened to live in Richmond. I felt I needed her as a witness. On our way to Roanoke, Bill and I had picked her up at her house in Richmond and driven her to Roanoke so she could testify. I cannot remember if she sat with me at respondent’s table or if she had to wait outside the courtroom until she testified but the awkwardness of the previous case and the following case did not physically manifest itself at petitioner’s table in the courtroom. We tried the case. I felt petitioner had not put on enough evidence to win.
Last up was the well to do couple. Each came with their well-coiffed new spouse and with their own counsel. As government counsel we really had little to do except sit back and watch the fight.
I tell this story because it turned out that in the case of the middle class husband the court made what I thought was a terrible mistake and gave him something where I was certain I should have won the whole case. Naturally, I felt the need to bring this to the court’s attention so it could correct its mistake. My boss, the district counsel, normally knew the manual that governed our actions backwards and forwards but for some reason he did not know the internal rules on getting permission within Chief Counsel’s Office before moving to reconsider, and I did not bother to consult the manual because it did not occur to me that such a thing required a high level of review. So, I prepared and filed a motion for reconsideration. It took the court a very short time to let me know it had not made a mistake and to let me know what it thought of my motion. Not long thereafter the National Office let me and my boss know what it thought of our filing a motion for reconsideration without getting their permission. All in all, it was a memorable experience. (Of course, I am still convinced I was right on the merits.)
So, I come to the discussion of the IRS filing a motion for reconsideration with some background. I know that it does not do so lightly and I knew when I wrote the earlier post on this case that the IRS would not like this outcome. I previously wrote a two part post about the Room of Lies, here and here. Part one of those posts is applicable here. The office that lost this case would have engaged in a discussion with the National Office and a decision, perhaps at the level of Associate Chief Counsel for Procedure and Administration, would have been made to authorize this motion. There would have been memos and meetings and lots of discussion. Filing the motion was not the knee jerk reaction of one attorney as with my motion 35 years ago or with motions filed by many petitioners.
Despite the process of vetting that would have occurred prior to the filing of the motion, the IRS lost the motion and, at least in my opinion, it should have lost the motion. The facts in Senyszyn are extremely unusual. The IRS is not concerned about losing on this fact pattern because this will almost never occur. The IRS is concerned that the opinion in this case, in which the Court issued a precedential opinion, will impact other cases and cause a lot more litigation in post-conviction cases. I do not think it will or should because the decision is narrowly based on the unique facts presented. Nonetheless, the willingness of the IRS to file a motion for reconsideration here, something it does infrequently and only with careful thought and consideration means that the Chief Counsel attorneys will be pushing hard for an appeal when they visit the Room of Lies. Petitioners here, who are self- represented, potentially face another hurdle depending on whether the Tax Division of the Department of Justice and the Solicitor General takes up the almost certain request for appeal.
If you plan to file an appeal, you need to think about whether you should file a motion for reconsideration and give the judge the opportunity to improve on the original opinion. You might decide that the mistake you think you see in the original opinion is one that will cause the appellate court to overturn the case. If so, the motion for reconsideration could make your appeal more difficult if the judge sticks to the original decision but offers a better and more thoroughly reasoned opinion for the decision. If you think you have that rare case in which the deciding court actually will reconsider, then the motion is certainly worthwhile because it provides a cheaper and faster path to victory than appeal.
In its motion here the IRS brought a few errors to the attention of Judge Halpern. First, it pointed out that he “did not properly apply the standard for collateral estoppel.” In particular the IRS expressed concern with the Court’s claim of “broad discretion in the application of collateral estoppel” because such a claim contradicts precedent in the Third Circuit, the court of appeals to which this case lies and the court precedent the Tax Court will follow under the Golsen rule. In addition to this error, the IRS also pointed out that proper application of the rule of collateral estoppel would result in a substantial deficiency for petitioners because that rule would require the Court to accept the dollar amount mention in the plea agreement.
This is one of those cases where making the motion for reconsideration gave the judge the chance to expand upon the reasoning behind the original opinion. Because motions for reconsideration do offer judges this chance, I am sure that they really appreciate it when a party makes this motion. In arguing that the Court applied the wrong standard for application of collateral estoppel, the IRS argued that the Third Circuit, the circuit to which the appeal in this case lies and therefore the applicable circuit for the Golsen rule, “allows trial courts discretion in the application of collateral estoppel only when the doctrine is asserted by a claimant who was not a party to the prior litigation.”
The Court responded by noting that the motion for reconsideration filed by the IRS left largely unchallenged the Court’s determination that the purposes of collateral do not support applying the doctrine in this case. Where the facts showed that the petitioner did not have a tax liability despite his prior plea, applying collateral estoppel would further injustice for the sake of judicial economy. The principle of collateral estoppel was created by courts primarily for their benefit so that they would not need to retry matters settled by the same parties in prior litigation. If the courts created this doctrine, why shouldn’t they be able to use it to fit the circumstances?
The Court goes on to explain that any case raising collateral estoppel requires a court to consider equitable factors “to assure that the doctrine is applied in a manner that will serve the twin goals of fairness and efficient use of private and public litigation resources.” The Court then continued to quote from National R.R. Passenger Corp v. Pa. Pub. Util. Comm’n, 288 F.3d 519 (3rd Cir. 2002) stating “even where the requirements of the general rule of collateral estoppel are satisfied, the Court must consider whether there are special circumstances present which make it inequitable or inappropriate to foreclose relitigation of a previously determined issue.”
Based on this language from a Third Circuit opinion, the Tax Court in responding to the motion for reconsideration goes on to say that the precedent of the circuit does not require that collateral estoppel must be applied even where the requirements for application are met. It remains to be seen whether the IRS will appeal this case but the motion here gave the Tax Court the opportunity to expand upon its reasoning and specifically address the law of the circuit. Petitioners should be please because the Court has written much of their brief.
The IRS concern that failure to apply collateral estoppel after a criminal conviction will cause many individuals convicted of a tax crime to seek to relitigate aspects of their criminal case in the Tax Court is a concern that the Tax Court undoubtedly shares. The facts here established that the petitioners did not owe any tax. These facts will almost never exist. To ignore these facts and use the principle of collateral estoppel to establish a liability that all parties know is wrong seems like an inappropriate application of a principle designed by the courts to add justice.