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Unpublished CDP Orders Dwarf Post-trial Bench Opinions in Uncounted Tax Court Rulings

Posted on Jan. 29, 2015

In this post, Carl Smith builds on Keith’s prior post discussing Tax Court bench opinions. The fascinating post discusses how non-precedential CDP orders may implicate substantive issues and matters of great practical importance to taxpayers, some of whom are unrepresented and in need of legal assistance.

The Internal Revenue Code directs TAS, in its annual report, to “identify the 10 most litigated issues for each category of taxpayers, including recommendations for mitigating such disputes”. Section 7803(d)(2)(B)(X). When the statute was enacted in1998, the Tax Court had not yet put its opinions on line.  But, it shortly thereafter put them on line, making T.C., T.C. Memo., and T.C. Summary Opinions searchable.  Previous to adding T.C. Summary Opinions, only the IRS and the Tax Court (and the particular petitioner involved) knew of T.C. Summary Opinions.  Part of why the court made T.C. Summary Opinions searchable — notwithstanding their lack of precedential value — is the court thought it unfair that the IRS, in effect, had a secret, monopoly library of T.C. Summary Opinions to look at, while the taxpayers did not.  The court wanted to level the playing field.  In TAS’ annual reports to Congress since 1998, out of the Tax Court, only T.C., T.C. Memo., and T.C. Summary Opinions have been counted as identifiable litigations.  As we all know, just because something is not precedential, though, doesn’t mean people don’t want to read it for tea leaves when the situation comes up again.  That’s why private letter rulings are also published these days (at least after persistent Tax Analysts lawsuits).  In a recent post, Keith noted that after June 17, 2011, the Tax Court has been posting on line all of its orders and bench opinions and making them searchable.  Keith recently examined the surprisingly large number of bench opinions that the court has been issuing.  He found 222 in a roughly two-year period.  Not only do I now think it appropriate to include non-precedential bench opinions in litigated cases for purposes of TAS’ annual report, but I also think that non-precedential CDP orders on motions for summary judgment or that result in a contested remand should be published. My research indicates that such CDP orders dwarf even the number of T.C. Memo. Opinions issued each year.  Are we really giving Congress the true litigation picture by excluding these bench opinions and CDP orders?

In 2014, there were 24 T.C. opinions issued from January to June and 21 opinions issued from July to December.  There were also 259 numbered T.C. Memo. Opinions, and 115 T.C. Summary Opinions.

According to the 2014 TAS annual report (which covers cases issued in the period from June 1, 2013 to June 1, 2014), out of all courts together, there were only 731 “litigated tax cases” that TAS reviewed. TAS reported that litigation of CDP cases had been falling, with only 105 cases in 2013 and 76 cases in 2014 – leaving CDP no longer the first-most, but now the fifth-most litigated issue in tax cases. NTA 2014 Report, Vol. 1, pp. 423-425.

Now let’s alter TAS’ math: Taking Keith’s bench opinion figure and dividing it by two (his analysis covered 2011 to 2012, though I am not sure it included bench opinions issued before June 17, 2011), one can project that there were likely also about 110 bench opinions issued last year.

I did an order search for orders issued from 1/1/14 to 12/31/14 using the following words: “(summary judgment or remand) and (6330 or 6320).” This search turned up about 300 orders (12 pages of 25 cases per page).

Most of these orders are grants of IRS motions for summary judgment — but with multipage descriptions of (1) the facts, (2) the legal standards for summary judgment (e.g., Florida Peach Corp. v. Commissioner, 90 T.C. 678 (1988)) and CDP review (e.g., Sego v. Commissioner, 114 T.C. 604, 608 (2000)), and (3) application of the law to the stated facts to reach a ruling. These orders are for all intents and purposes like published opinions and could easily have been issued as T.C. Memo. or T.C. Summary Opinions, unless the judges are deliberately evading the Chief Judge’s review function for opinions found at section 7460(b).  That’s an interesting question for Chief Judge Thornton to consider.

In the vast bulk of the orders, the taxpayer is told that he or she can’t challenge the underlying liability (if the taxpayer tried to), and he or she loses on collection alternatives either because the taxpayer (1) is not current on paying and filing, (2) never provided a requested Form 433-A, or (3) never requested a specific collection alternative (i.e., a particular installment agreement or offer in compromise).

Still, in a significant chunk of the rulings, the IRS loses the motion, and, sometimes a remand is ordered.  This usually comes after some highly critical comments from the judge on what seems lacking in the administrative record or in the Settlement Officer’s behavior.  My hunch is that some of these ordered remands result in settlements so the cases never again return to the judges for a regular ruling.  For those of you who are tired of reading CDP T.C. Memo. and T.C. Summary Opinions where the taxpayer loses and so conclude that Tax Court CDP review is a waste of time, I suggest you examine some of these orders where the court directs a remand.

Indeed, within the orders, you will also find additional remand orders requested by IRS attorneys themselves before a court even had to rule.  The IRS attorneys were too embarrassed to let the judge see the record in the current, inadequate or illogical state.

Of the 300 or so CDP rulings I uncovered, no doubt a few score of them would not meet my criteria for counting as litigations. In some cases, my search picked up IRS voluntary remands, where the judge said little but granted the order. That’s not enough of a fight to me to count as litigation. Also, if an order was issued in three consolidated dockets, it shows up three separate times in my search. That’s why some human review of the orders would be needed.

But I just don’t see the wisdom of excluding contested CDP summary judgment and remand orders when, by any count, they both dwarf bench opinions and approximate the total number of T.C. Memo. Opinions issued each year.

The Kurko Rulings

I wanted to give one example of a situation where both a denial of a motion for summary judgment and a later bench opinion ordering a CDP remand were issued and provided some jaw-dropping pro-taxpayer findings and holdings.  It seems somewhat arbitrary not to count each of these orders as litigations for purposes of the TAS report, as they get into quite interesting issues.

In Kurko v. Commissioner, T.C. Docket No. 24040-13L, Judge Gustafson was faced with an IRS motion for summary judgment as to some years and a motion to dismiss as moot as to other years in a CDP case.  In a 9-page single-spaced order issued on Nov. 12, 2014, and which Stephen mentioned in the Summary Ops. blog posting of November 25, 2014, Judge Gustafson rejected the contention that there were no material facts in dispute. The judge thought there was an issue about whether a late-filed original return for 2008 filed in 2013 (during the CDP hearing) and showing a large overpayment could have been used to pay down the CDP assessment for the 2009 year because the late claim might have qualified for the section 6511(h) tolling for a person who was financially disabled. The judge thought that it was possible that Ms. Kurko had made it clear enough at the CDP hearing that the Settlement Officer should have realized that this exception might apply and that the SO should have helped explain to the taxpayer how to get the appropriate doctor letter, if possible, to confirm section 6511(h) tolling under Rev. Proc. 99-21. (Judge Gustafson knew that, by the time of the Tax Court proceeding, Ms. Kurko had, in fact, been awarded SSDI – presumably with the assistance of a doctor’s letter similar to the one needed for Rev. Proc 99-21.)

After the motion was denied, the Kurko case proceeded to trial a few weeks later, and Judge Gustafson held, in a 13-page bench opinion (formally issued on Dec. 30, after being read into the record on Dec. 16), that the SO had abused her discretion by not considering section 6511(h) and by not trying to help the taxpayer get a necessary doctor letter to prove financial disability. The judge ordered a remand. The judge was highly dubious of the SO’s testimony (contradicted by the taxpayer) that the taxpayer had never even mentioned her disability and hospitalization for bi-polar disorder during the CDP hearing.  The judge was in a bit of a pickle, though, since Ms. Kurko lives in the First Circuit, which is one of the Circuits that holds that the Tax Court proceeding is limited to the administrative record.  The Tax Court feels otherwise, and the D.C. Circuit held in Byers v. Commissioner, 740 F.3d 668 (D.C. Cir. 2014), that CDP cases involving only collection issues are properly appealable to it — a Circuit that has not ruled on the CDP record rule issue.  Judge Gustafson did not want either to cite Byers or get into whether he had to apply the record rule.  So, here’s how he finessed the issue of expanding on the administrative record when neither the administrative correspondence not Case Activity Record mentioned section 6511(h) or disability:

The IRS contends that out review is confined to the administrative record. The IRS says that an appeal in this case would lie in the United States Court of Appeals for the First Circuit, and that the First Circuit has adopted the “record rule” and has held that, in such a review, we are confined, with “limited exceptions”, to the administrative record developed in the CDP hearing before IRS Appeals. Murphy v. Commissioner, 469 F.3d 27, 31 (1st Cir. 2006). This position involves two difficulties — first, that it is unclear whether a contention (explained below) that a credit elect overpayment should be applied to the liability is an “issue relating to the unpaid tax” (sec. 6330(c)(2)(A)) that would be subject to the record rule; and second, that it is unclear whether a taxpayer seeking a credit elect is “seeking redetermination of tax liability” for purposes of section 7482(b)(1)(A) or whether instead appeal would be to the D.C. Circuit (sec. 7482(b)(flush language)).

However, we assume for present purposes that the “record rule” does govern this case, but we find applicable one of the exceptions that the First Circuit noted — i.e., that “[a] reviewing court may accept evidence outside the administrative record…where there is a ‘failure to explain administrative action [so] as to frustrate effective judicial review,’ Camp v. Pitts, 411 U.S. 138, 142-43, 93 S.Ct. 1241, 36 L.Ed.2d 106 (1973) (per curiam).”

We think that the silence of the notice of determination about IRS Appeals’ resolution of Ms. Kurko’s credit elect claim and the absence from the record of the information she gave about her disability combines to fit this exception. Whether from overwork or inattention, the SO failed to record Ms. Kurko’s insistence that her disability accounted for her late 2008 return, and in its determination IRS Appeals failed to address that contention, which we now explain.

So, at trial, the judge took testimony from the SO and Ms. Kurko on what transpired during the CDP hearing and found that the SO’s testimony was incredible on its face.  Here’s only a bit of the flavor of what the judge wrote of the SO’s testimony:

The settlement officer (“SO”) . . . had been an SO for more than 10 years.  She estimates that she has handled 450 cases per year (i.e., more than 4,500 cases by the current time) and states that she cannot recall the details of the cases.  At trial several of her answers to questions about what was said on a given subject in Ms. Kurko’s case were in the nature of “Nothing that I can recall” or “Nothing that I can remember”, and she appeared to indicate that in fact she had no recall of Ms. Kurko’s hearing. For each case the SO prepares a “Case Activity Record” on which she makes dated entries of her contacts with the taxpayer, but it is clear that she does not attempt thereby to give a transcript of her conversations nor even to note every specific subject that is discussed.  Consequently, some of what we find Ms. Kurko said over the telephone does not appear in the SO’s case activity record or other documents in the IRS’s record for this case.  The SO believes that, in her more than 10 years on this job with more than 4,500 taxpayers, no taxpayer has ever requested in a CDP hearing that he be found “financially disabled” for purposes of the statute of limitations on refund claims (see section 6511(h)).

Relying on Ms. Kurko’s testimony, instead, the judge believed that Ms. Kurko mentioned her bi-polar disorder, her 2009 hospitalization, and her then pursuit of Social Security disability. The judge did not merely state (like some judges) that it is premature to declare the SO to have abused her discretion.  Instead, he issued a bench opinion finding an abuse of discretion and ordering a remand to consider the section 6511(h) issue.  The remand hearing is supposed to be completed by February 17, with a report due to the court by March 16.  To me, the Kurko case deserves not only counting as a litigation by TAS, but a description by TAS as one of the more important CDP litigations of the current year.

Closing Observations

One final sad note about Ms. Kurko.  She is pro se and may be in such a bad condition that she is incapable, without assistance, of getting the appropriate doctor’s letter under section 6511(h).  The judge carefully explained what she needs to do to get the letter during the remand.  In his November order, he begged someone to step forward as her “next friend” or with a Form 2848 power of attorney to represent her at Appeals.  I am retired and not still taking on new cases, but I would urge any attorney in Massachusetts who wants to help this poor woman to step forward and do a real pro bono service for her.

There are some judges on the Tax Court who came from private practice and so will approach private lawyers they knew from pre-judge days and ask them to either step into a Tax Court case or do an appeal pro bono.  To his great credit, Judge Holmes will do this, even when he knows he is asking the attorney to take a position that Judge Holmes opposed in a vehement dissent in a T.C. opinion.  Judge Gustafson comes from government, and whether he doesn’t know enough people in Boston or feels queasy about doing this, he is now watching a slow-motion tragedy unfold before him.  It seems highly likely that a sufficient section 6511(h) letter could be obtained, but the taxpayer is too disabled even to comply with Rev. Proc. 99-21.  This is more reason either to expand section 6511(h) not to be so restrictive or to statutorily overrule United States v. Brockamp, 519 U.S. 347 (1997), which prohibits equitable tolling of the section 6511(a) and (b) periods.

This also raises another issue, which I leave to others to discuss:  Every U.S. district court has pro bono panels of lawyers willing to be assigned (and compensated) for criminal cases.  And every Circuit Court has pro bono panels of experienced appellate lawyers willing to be assigned to both criminal and civil cases — the civil cases for free.  Has the time now come for the Tax Court to set up a pro bono panel of Tax Court practitioners who would be willing, on occasion, to be assigned by a judge to take on a taxpayer’s case — including handling pro bono any necessary appeals?  Please give your views on this in the comments section.  We need to know if there is a ground swell for doing this.

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