On March 21, Steve blogged about the important decision of the 2nd Circuit in Chai v. Commissioner on March 20, holding that the IRS most show, as required by IRC 6721(b), that the immediate manager approved the imposition of a penalty. In a designated order entered on March 22, 2017, in Henderson v. Commissioner, Docket No. 14187-16L, Judge Cohen cites to the Chai decision in a ruling on the motion for summary judgment filed by the IRS in this Collection Due Process Case. Like the order in Vigon v. Commissioner issued by Judge Gustafson which we blogged about here, Judge Cohen requires the IRS to address the requirement of IRC 6751(b). Specifically, she orders “on or before April 10, 2017, respondent may supplement the motion for summary judgment with any additional affidavit or argument concerning compliance with the requirements of law and administrative procedures supporting the notice of determination in this case, specifically with respect to compliance with Internal Revenue Code Section 6751(b)(1)….”
The fact that she added the requirement to show appropriate approval and that she made this order a designated order, signals what may be an important shift on the Court regarding the practice it will now take regarding the IRS obligation to prove the appropriate approval of penalties. We will continue to monitor this issue because it suggests a potentially huge shift in practice. Kudos again to Frank Agostino and the attorneys in his office for identifying and pursuing the argument in a statute that lay forgotten for almost 20 years.
For those of you not familiar with designated orders, the Tax Court has a wonderful feature available on the front page of its web site in which it posts the orders entered each day and provides a feature making the orders are searchable. The searchable feature of the orders makes the Tax Court’s treatment of them vastly superior to PACER. The feature became available in 2011 limiting the lookback period but that limitation grows less important with each passing day. As the orders get posted, the judge issuing the order has the opportunity to “designate” the order. If the judge designates the order, the judge is signaling that the order is somewhat special – at least in the view of that judge. Keep in mind that orders do not go through the review in the Chief Judge’s office prior to issuance as is required with opinions. Matters decided by orders also do not have precedential value as we have discussed before. Yet, a not insignificant percentage of Tax Court cases get resolved through dispositive orders rather than opinions. Designated orders allow the judge to alert practitioners that something about the order deserves attention; however, the designation of the order does not require, or really provide for, the judge to state explicitly why the judge has labeled it as a designated order. The reader must surmise from context why the judge has chosen to designate the order. On any given day the Tax Court may post five orders and maybe one order will be designated.
In the case of the order in the Henderson I surmise that Judge Cohen designated it because of the citation to Chai and the requirement that the IRS put on its proof about the authorization of the penalty. This blog has regularly mined orders, and especially designated orders, as a source of information about Tax Court procedure that often goes unnoticed. As mentioned before, Carl Smith has generally served as our eyes and ears on the Court’s orders. We have decided to begin regularly posting about designated orders from the prior week in order to alert readers to those orders the judges on the Court deem most important.
The Henderson order, citing to Chai in a case which appears appealable to the 9th Circuit and not the 2nd, suggests a new day has dawned for the IRS in meeting its obligation when it asserts a penalty. We will be watching closely for other orders and opinions.