A recent order issued by Judge Nega in the case of Low v. Commissioner points to the perils of submitting a case fully stipulated under Tax Court Rule 122. Rule 122 allows the parties in a Tax Court case to fully stipulate a case and avoid the messy issues that can arise at trial. When done correctly, fully stipulating a case provides a simple and easy method for submitting a case to the Tax Court. When done poorly, a party can learn to its detriment that it has made an incomplete stipulation leading to an avoidable loss.
A typical case in which the parties use Rule 122 involves a case in which the parties dispute one or more discreet legal principles but have no disagreement on the facts. Of course, it is possible to go to trial and neglect to put on necessary facts, but submitting a case fully stipulated may make it easier to overlook necessary facts. The Low case involves a Collection Due Process (CDP) determination. Here, respondent overlooked including the administrative record in making the Rule 122 submission and the court finds that oversight troublesome.
I submitted a case fully stipulated once when working for Chief Counsel, IRS and the case included the negligence penalty. The case arose before 1998 and the change in the burden of persuasion on penalty issues. Petitioner’s counsel did not request that we stipulate to any facts that would support a basis for the court to find reasonable cause or another basis for striking the penalty. Several weeks after the case was submitted fully stipulated, he realized that he needed more facts in order to give the court a basis for finding in his favor. The additional facts he wanted to stipulate were, after some discussion and narrowing, facts with which I agreed. We submitted a supplemental stipulation. In the Low case, however, the parties never realized that their stipulated facts did not fully present the issue. This caused a problem for Judge Nega. He resolved it by remanding the case which he could do because it was a Collection Due Process (CDP) case. I do not recall a previous case which the Court remanded due to an incomplete stipulation. So, I thought I would write about this non-precedential order.
As mentioned above, the Low case involves CDP. CDP cases do not naturally lend themselves to submission under Rule 122 and I do not remember seeing a fully stipulated CDP case previously much less one that was remanded. The fact that CDP cases do not regularly use Rule 122 does not mean that its use here was inappropriate. The factual nature of CDP cases usually involves a petitioner who wants or needs to testify – assuming they get past the now routine motion for summary judgment. A CDP case contesting the merits of the liability could easily qualify for Rule 122 treatment.
The failure to submit the administrative record as part of the Rule 122 submission leaves the judge less than satisfied with the record he must work with to make a decision. He states:
In the notice of determination, the AO provides a perfunctory statement asserting she verified respondent’s compliance with the “requirements of any applicable law or administrative procedure” by reviewing petitioner’s account transcripts. Petitioner’s transcripts are not included in the record before us. In fact, we were not provided any of the documents that ordinarily comprise the administrative record, that corroborate and support an appeals officer’s findings and determinations. See IRM pt. 184.108.40.206.2 (Sept. 18, 2012)(when litigating a CDP action respondent ought to provide the Court with a substantive and authenticated copy of the administrative record as described in IRM pt. 220.127.116.11.4 (July 25, 2012)(e.g.: Forms 4340, Case Activity Record Prints)). The stipulated record is astonishingly thin, composed of only four exhibits: two letters from petitioner, the levy notice, and the notice of determination. A clear record is necessary for review of any administrative proceeding. Here, the paucity of the record before the Court provides anything but clarity. It is within the Court’s discretion to remand cases to respondent’s Office of Appeals for clarification and supplementation of the administrative record as appropriate. See Wadleigh v. Commissioner, 134 T.C. 280, 299 (2010); Hoyle v. Commissioner, 131 T.C. 197 (2008); see also Gurule v. Commissioner, T.C. Memo. 2015-61 (remand is appropriate when the appeals officer failed to develop an administrative record sufficient for judicial review). Because the administrative record is insufficient, and we are unable to properly evaluate whether the AO abused her discretion, we will remand this case.
The quoted material contained two footnotes. The first footnote addressed the material the IRM suggests should be made part of the record and provides the following:
IRM pt. 18.104.22.168.4 directs respondent’s counsel, when attempting to dispose of a CDP case by means of summary judgment, to provide this Court with supporting declarations and an authenticated copy of the comprehensive administrative record. See also Rule 121(d). It would seem appropriate to expect the same when a case is similarly submitted for disposition without trial under Rule 122.
The second footnote addressed the failure of respondent to discuss the proof issue raised in Chai v. Commissioner regarding the authorization of the penalty asserted by the IRS.
It is clear that the IRS attorney has work to do here. We have addressed in several posts the additional work needed by the IRS in its summary judgment motions under Rule 121 as pointed out by several orders issued by Judge Gustafson. Now, Judge Nega points out the many missing pieces when the IRS seeks instead to use the fully stipulated Rule 122 procedure. The regularity of these orders suggests that Chief Counsel attorneys may need to step back and think more deeply about what they must prove in submitting cases.
The decision in Chai changes the game somewhat but the problems go deeper. Here, the Court allows/orders the parties to resubmit a fully stipulated case. In some ways this is like having a trial and then getting a do over. It does not reflect well on the IRS that it cannot identify the facts necessary to prove its case and that it has submitted a case fully stipulated which falls so far short of the necessary proof.
Rule 122, when used properly, allows the parties to save time and money by not having to go through a trial. When submitting a case fully stipulated, however, you must go through all of the same steps regarding proof that you would do if you had a trial. You must carefully analyze each issue in the case and make sure that you have put in evidence that will support your position on the issue. The failure to do so creates a disaster. Having a Rule 122 case returned as an inadequate submission is not something I remember seeing before. The IRS looks really bad here.
The taxpayer represented himself and made frivolous arguments. The Court admonishes him to stop making such arguments or face a penalty. The Court remands the case to Appeals. I am sure the IRS will do a better job when/if the case comes back to the Court but surprised that it missed the mark so widely in this first attempt.