Last month we wrote about the fully reviewed Tax Court opinion in Graev v. Commissioner, 147 T.C. No. 16 (Nov. 30, 2016) in which the majority of a deeply divided Court held that the Court could not decide if the IRS had failed to follow the requirement in 6751 that the IRS obtain managerial approval before assessing a penalty because the assessment had not yet occurred. The majority suggested that the taxpayer could raise the issue in a Collection Due Process (CDP) case after the assessment but not a deficiency case. The Graev case was heard by Judge Gustafson though he ended up writing the dissent in the case once it went to Court conference. Conveniently, a CDP case involving 6751 just happened to be pending in Judge Gustafson’s inventory and unfortunately for the Chief Counsel attorney, who filed a not carefully worded motion for summary judgement, it came up right after the Graev decision was issued. The Chief Counsel’s attorney’s misfortune was good luck for practitioners following this issue since it allowed Judge Gustafson to highlight the language of the statute he had recently discussed with his colleagues in Court conference and point out what the IRS must do if it wants to prove its 6751 case. Chief Counsel attorneys filing summary judgment motions in future CDP cases may want to pay attention to this order.
In Vigon v. Commissioner Judge Gustafson issued an order denying the motion for summary judgment filed by the IRS. He did so for several reasons each of which deserves mention. The case points out once again the importance of orders in Tax Court decisional matters even though orders have no precedent setting value. The turnaround time on this order is worth noting. We have discussed before the length of time it can take for a taxpayer to receive a decision from the Tax Court. That was no problem here. The motion for summary judgment was filed on December 21, 2016 and the order was entered on December 23, 2016. Swifter justice could hardly have occurred.
The order entered on December 23, 2016, was not the first order entered in this case. Petitioner requested place of trial in DC. Petitioner indicated to the Court that he would have difficulty attending the trial because he was in Canada. Then Chief Judge Thornton issued an order directing the clerk to send to petitioner information about how to resolve his case without trial. The letter sent by the clerk is not available on the Court’s electronic docket but I presume it talks about settlement. Settlement here may prove difficult because the issue appears to be the imposition of several frivolous tax submission penalties under IRC 6702(a). Surprisingly, the IRS does not contest the ability of the taxpayer to raise the merits of his liability for these penalties because it generally takes the position that an administrative opportunity to contest the penalties prevents the taxpayer from raising the merits of standalone penalties in the CDP context.
When the case was scheduled for trial, petitioner’s wife wrote to the Court requesting a continuance because her husband was incarcerated. (As a side note I will mention that if he was incarcerated in Canada at the time he received his CDP notice it is surprising that he was able to timely file a CDP petition. Being out of the United States imposes a significant barrier on receiving the notice and turning it around into a timely petition without the additional difficulty factor of the mail delays encountered by those who are incarcerated.) Judge Gustafson granted the request for continuance but provided the following guidance to respondent in the second paragraph of his order:
“ORDERED that, no later than May 25, 2016, respondent shall file a motion for summary judgment or another appropriate motion. Presumably, respondent’s motion will undertake to show that the “verification” by the Office of Appeals pursuant to section 6330(c)(1) included a verification of compliance with section 6751(b)(1). See IRM pt. 188.8.131.52.1 (08-13-2015) (“Pursuant to IRC Section 6751(b), written management approval must be indicated before assessing the IRC Section 6702 penalty. This written managerial approval should be indicated on Form 8278”).”
The Chief Counsel attorney assigned to the case must have discovered that Appeals did not bother to verify compliance with 6751 as a part of its CDP verification process (shocking), and he came back to the Court requesting a remand of the case to Appeals to allow it to complete the verification process it missed during its initial consideration. The Court granted this request. The case went back to Appeals in late July or August of 2016 and returned to Chief Counsel’s Office in time for it to file the motion for summary judgement that is the subject of this post. On the second trip through Appeals a verification of the approval required by 6751 occurred although, as discussed below, the verification did not satisfy the Court.
The December 23 Order
The first paragraph of the Order sets the tone for the problems the IRS faces in getting the summary judgement it has requested. The Court states:
“Some of the factual predicate for the Commissioner’s motion is not “supported as provided in this rule”, Rule 121(d), sent. 3; and legal argument needed to address patent questions is not given in the motion. We will therefore not require Mr. Vigon to file a response but will deny the motion and will schedule this case for trial….”
The first problem with the motion that the Court addresses is that the IRS argued that the documents mailed to it that caused the imposition of the frivolous submission penalties were not amended returns; however, the Court points out that three of the nine documents in question had the amended return box checked.
Another problem with the motion for summary judgement concerned its description of the documents as returns. The Court points out that three of the documents were unsigned and could not qualify as returns.
The most relevant problem for purposes of this post, however, comes with the verification of the immediate supervisor as required by IRC 6751. Before analyzing the legal issue presented the Court makes the following observation about the verification:
“The Commissioner’s motion for summary judgment asserts that “before each of the I.R.C. section 6702 penalties was assessed, an immediate supervisor of the individual making the determination to assess the penalty approved that determination in writing”. The Forms 8278 do name an “Originator” on line 10a and a “Reviewer” on line 16. However, not in keeping with the remand memorandum, neither the motion nor any of its attachments (as far as we can tell) identify the person approving the penalty determination as being in fact the immediate supervisor of the individual making the initial determination of the penalty. (Rather, in an email to counsel (Ex. V), the settlement officer observed, “[T]he form 8278 shows a ‘Reviewer’ signature which everyone seems to constitute as a manager signature but it would be better presented in a court situation if the form was changed to notate Manager or Supervisor as the actual person signing the form.”)”
Leaving aside the statutory problem the IRS has with IRC 6702 and whether some the documents filed by petitioner meet the requirement of being a return, the Court focuses on the verification requirement under 6751 of approval. The statute requires the approval of the immediate supervisor of the person making the penalty determination. Although the statute would also allow approval by mangers higher up in the pecking order it does so by stating that those non-immediate supervisors must be delegated by the Secretary of the Treasury. To date, the Secretary as not delegated anyone who can make this approval. This means that the IRS must show, and Appeals must verify in a CDP case, that the immediate supervisor of the person making the penalty determination has approved the assertion of the penalty.
Looking at the description from Appeals described above, the form shows the signature of a reviewer but does not make clear that it is the signature of the immediate supervisor of the person making the determination. The IRS fails to address this in its motion and instead glosses over it with a reference to the generic term of manager which is a broader term that immediate supervisor. Because of a mismatch between the terms used by the IRS in its forms and in its arguments with the language of the statute, the Court denies the motion for summary judgment.
Perhaps the settlement letter sent almost two years ago by Chief Judge Thornton will gain increased importance or perhaps the IRS will seek to remand the case again to search to find out if the person signing the penalty approval form was the immediate supervisor of the person making the penalty determination. The Vigon case points again to the problems the IRS encounters in administering this long forgotten and only recently focused upon requirement of the 1998 legislative changes. If Mr. Vigon wins, he needs to send Frank Agostino a thank you note for bringing the issue to light and Judge Gustafson a note for requiring that the IRS adhere to the statute. Because Mr. Vigon is representing himself and has sent in nothing in his defense that I can see on the electronic docket, he would have lost already if the Court were not actively looking out for his interests. This puts a significant burden on the Court and one that it cannot always meet because the system is not designed for the judge to find all of the arguments that a taxpayer might want or need to make.