On September 11 the Chief Counsel sent a letter to the Chief Judge requesting 13 changes to the Tax Court’s rules. Most of the proposals would not create sweeping changes to the existing rules but some of the proposals could have a significant impact. I will try to briefly describe each proposal and some issues it might raise. At the ABA Tax Section meeting last week Drita Tunozi, Associate Chief Counsel (Procedure & Administration) and Debra Moe, Division Counsel (SBSE) presented the proposals. They engaged in a very productive discussion with the Pro Bono and Tax Clinics Committee where I heard them speak.
It is my understanding that the Tax Court intends to receive comments on the proposal prior to November 1; however, I have not seen anything formal to substantiate my understanding.
Answer in Small Tax Cases
Small Tax Cases came into existence in 1969 and have for many years constituted about half of the Tax Court’s docket. Back in the early 1980s, at a time when Chief Counsel’s office enjoyed perhaps a more cozy relationship with the Tax Court, the office convinced the Court to eliminate the requirement for answers in these cases. As an attorney with many of these cases on my docket at the time, I thought the rule change was the greatest thing since sliced bread – whatever that means. Most answers in small cases provide little information but do require the Chief Counsel attorney to review the file before denying most, if not all, of the allegations.
At least two relatively significant problems evolved as a result of the removal of the requirement that the IRS file an answer in Small Tax Cases. The first problem impacted petitioners, particularly pro so petitioners, at the outset of the case because in the absence of an answer they were left with no information about the case for many months. Eventually, someone in Appeals would reach out to them to invite the petitioner to a meeting to discuss the case. By the time this happened, many months may have passed since the filing of the petition. During this period pro se petitioners had no idea what had happened to their case. Because some wanted to resolve their case during the period it had entered this bureaucratic black hole, the first problem caused taxpayers to turn to calling the Court to find out what was happening in their case – something the Court was not equipped to tell them.
The second problem occurred because no one in Chief Counsel’s office reviewed the file at the outset of the case. The file went from the Examination Division to Appeals. The Appeals employees did not focus on jurisdictional defects. Only when the case returned to Counsel’s office relatively close to the trial date did someone focus on the jurisdiction of the Court in the case. Counsel’s office, therefore, did not make jurisdictional and other motions that one might expect to occur early in the case until at or near the time of the calendar when the attorney first glimpsed the file. The second problem caused consternation that a case with a major problem had hung around on the docket perhaps a year or more longer than it should have. Petitioners, who might have worked with Appeals to resolve the case, found the case pulled out from beneath their feet. Both petitioners and the Court got frustrated at the timing of certain Counsel actions in the cases.
In 2007 the Tax Court reversed its policy of 25 years on answers in small tax cases. I thank it for waiting until I was retiring but most attorneys and executives at Chief Counsel’s office were not thankful for the reversal and have wanted to go back to the no answer days because of the costs involved in time and mailing of the administrative files. The current proposal asks the Court “to allow respondent to file a more helpful form of an answer in small tax cases.” It suggests an answer that would consist of a general denial of the allegations in the petition, the name and contact information of a Chief Counsel attorney and the time frame within which to expect a contact from someone in Appeals. The proposal indicates that a more formal answer would occur in cases requiring affirmative allegations which suggest someone in Chief Counsel’s office would carefully review the case but it does not explicitly say that the case would receive a careful view for jurisdictional and other early cases motions.
Most answers in small cases provide little beneficial information. Sometimes the general denial answers may confuse pro se petitioners who make up a very high percentage of small tax cases petitioners. It would, however, benefit the system if changes to the answer process in these cases resulted from careful study with data of what would best benefit petitioners and not focus on what would benefit respondent. The proposal lists possible benefits to petitioners from a more expeditious process but no empirical support backs up the proposed change. The process could improve. The Tax Court, with over 70% of its cases filed by pro se petitioners, has worked really hard to build a system that works for these petitioners. It seems appropriate to put some study into how to make the answer process work best for petitioners and not just the government. The efforts of the Chief Counsel executives to come to the Pro Bono and Tax Clinic Committee and engage in a dialogue about the process were very much appreciated. Before a change occurs, an empirical study determining what would work best for pro se petitioners would also be appreciated.
Electronic Filing Requirements
The Chief Counsel recommends electronic filing of all documents filed by represented parties. This would change Rule 26(b). The biggest change would occur at the beginning and ending of cases. Currently, the Tax Court does not allow electronic filing of the petition. Case ending documents such as the decision documents and the notice of appeal also fall outside the current rule. No change was recommended with respect to the exception for electronic filing for pro se petitioners. The proposal also requests that the Court allow electronic filing of the request to seal the Court records and that the Court upgrade its software to allow parties access to the documents in sealed cases. The proposed changes would bring the Tax Court more into line with other federal courts. At least with respect to the petition, it would change arguments about the timely mailing rule for represented parties to the computer ate my petition.
The current rule, Rule 147, has trial subpoenas returnable at calendar call. The Chief Counsel would like them returnable at least 30 days before calendar. A big reason for the change is the improvement this will cause in preparing for trial, stipulating and settling cases without waiting for calendar call that could be crucial to resolution of the case. No mention is made in the proposal of a requirement that the information obtained through the subpoena be immediately shared with the other party. Because this information will arrive after discovery deadlines, the other party would have no easy means to force the turnover of the information received.
Redaction of identifying data in signature blocks of decision documents
The Tax Court’s electronic calendar makes available for free to anyone the decision documents and other documents generated by the Court. It does not make available electronically documents submitted by the parties though those documents are generally publically available to those who can visit the Court, pay a courier to visit the Court or call and order the documents at $.50 per page. I have written about this before. The Chief Counsel is worried that those who prey on parties by gathering information can get useful information for victimizing petitioners by looking at the electronic decision document and learning the name and address of petitioners who owe the IRS based on the decision document. While the proposal mentions concern about pro se petitioners, it does not seem to limit itself to pro se or even individual petitioners. The proposal needs further refinement and shuts out the public from potentially important information without a thorough discussion of the pros and cons.
In the presentation to the Pro Bono and Tax Clinics committee an interesting discussion took place about the even more damaging document filed by individuals seeking a fee waiver and the public nature of this document. It is not available through electronic access. The debate centered on whether it should be treated in a similar manner to the document filed with the petition listing a taxpayer’s social security number and removed from the Court’s file available to the public. Since I am unsure exactly how the Court treats this document today, I cannot comment on whether the Court needs to change its policy regarding this document which does contain sensitive information about the finances of individuals seeking a fee waiver.
Imperfect Petitions: filing fee signature and attached notice
As a part of its effort to assist pro se petitioners seeking relief in the Tax Court, the Court will accept as petitions documents that do not follow the traditional format of a petition or use the Court’s sample petition format. Many of these documents are letters to the Court or copies of the notice of deficiency with comments handwritten on them. Upon receipt, the Court will issue an order directing the person sending in the non-traditional document, often sent in without payment or a request for a fee waiver, to amend the document to a more traditional format and pay the filing fee (or request a waiver) or have the petition dismissed. Many of these cases do get dismissed and many are filed based on correspondence that will not support Tax Court jurisdiction; however, by treating non-traditional correspondence in this manner, the Court allows many pro se petitioners to timely file their petitions and avoid a dismissal for lack of jurisdiction based on missing the 30 or 90 day time frame for getting the petition to the Court.
The Chief Counsel asks that the Court hold off on the requirement that he file an answer until the perfection of the petition. This seems reasonable if the Court seeks to get a clear indication of the petitioner’s issue or obtain payment of the fee; however, the Chief Counsel’s proposal goes well beyond this by asking the Court to dismiss individuals who cannot come up with the notice of deficiency or notice of determination. Since my clients rarely retain important documents, I cannot support dismissing them for failure to retain the notice and send it to the Court. The IRS has a record of the sending of the notices even if it may not have the administrative file at the inception of the case. This does place some burden on the IRS which traditionally files the notice where the petitioner does not file it or does not file a complete copy; however, that burden seems reasonable. To bar the door of the Court to those who fail to retain a copy of the copy of the notice goes much too far. Pro se petitioners place an extra burden on the Court and on the IRS. This particular burden seems like one the Chief Counsel should accept as the cost of doing business rather than seek the draconian remedy of bouncing the pro se petitioner out of Court when the IRS knows that it sent a notice and can produce it without extraordinary effort.
The Court’s current rule requires redactions in whistleblower cases and an accompanying numbered list. The Chief Counsel wants to do away with the numbers and the list explaining the redactions. We hope to publish a post regarding this proposal in the near future.
Inadvertent Disclosure of Privileged Material
The Chief Counsel proposes that the Tax Court adopt a rule similar or identical to Fed R. Civ. P. 26(b)(5)(B) providing that if “information mistakenly produced in discovers is subject to a claim of privilege or of protection as trial-preparation material, the party making the claim may notify any party that received the information of the claim and basis for it. After being notified, a party must promptly return, sequester, or destroy the specified information and any copies it has, must not use or disclose the information until the claim is resolved, must take reasonable steps to retrieve the information if the party disclosed it before being notified, and may promptly present the information to the court under seal for a determination of the claim.” This seems like a logical suggestion, however, I have not experienced the circumstance covered by this rule and my not have a basis to evaluate all of the ramifications.
Administrative Record in Declaratory Judgment Cases
The current rule requires the record to be submitted within 30 or 45 days after the petition. The Chief Counsel suggests that the requirement for submission be pegged to the trial date instead to avoid wasting time and effort when many cases settle prior to trial. This proposal seems reasonable but I do not have experience in these cases.
The Tax Court does not have a rule similar to Fed. R. Civ. P. 24 providing for permissive and mandatory intervention in cases before it. The recent case of Huff v. Commissioner imposed mandatory intervention. The Chief Counsel suggests the Court adopt a rule authorizing the Court to exercise discretion in grating or denying intervention. The proposal seems reasonable but I do not have experience in this circumstance.
Deposition of Party Witness
The proposal talks about the problem of obtaining information in “large, complex cases that are extremely factual … and where the petitioner restricts even informal access to significant fact witnesses….” Yet, the proposal recommends that the “Court allow non-consensual depositions of party witnesses upon notice to the party without requiring leave of the Court by motion.” Such a broad rule would allow the IRS to depose any petitioner, even pro se petitioners without leave of Court. The proposed change either needs further justification or it needs restriction to a certain class of cases not including pro se and low income petitioners.
Relief from Final Decision
The Tax Court allows vacation of decisions in a less inclusive set of circumstances than Fed. R. Civ. P. 60. The Chief Counsel wants to expand the bases for vacating a decision to situations similar to those in the FRCP. The principal rule discussed, currently missing from the Tax Court’s rules, concerns mutual mistake. This seems reasonable at first blush.
Courtesy Copies and Double-Sided Documents
The Tax Court rules currently require sending courtesy paper copies to the Judge and the opposing party where the electronically filed document exceeds 50 pages. The Chief Counsel wants to eliminate that rule and drop the sending of courtesy copies or, in the alternative, allow the sending of these copies on double sided paper. This seems reasonable. I wonder how often parties follow this rule.
The Tax Court currently announces trial calendars five months prior to the date of the calendar. The Chief Counsel recommends that it do so six months in advance of the calendar. A big concern of the Chief Counsel was the setting of calendars in multiple cities assigned to the same office within Chief Counsel which causes management problems for Chief Counsel. The Court tries to work with academic clinics to set calendars that fit the academic calendar. The person in charge of this is probably training for a job with the NFL or Major League Baseball with all of the considerations that go into setting a calendar including working with the administrators in the Circuits who hold the keys to the courtrooms in many cities as well as numerous other considerations. Changing from five to six months seems reasonable to me but I do not know the considerations of the Court on this issue. I understand why Chief Counsel’s office, like other players in this game of scheduling, wants consideration of its staffing issues just as academic clinics want a similar consideration.
I suggest reading and commenting on the proposals. Seems like a good time to throw in additional proposals while the Rules Committee at the Tax Court cranks up to deal with these. As a representative of low income taxpayers, I hope that the Court continues to work hard to address the needs of those petitioners as it accommodates the needs of the IRS and of represented petitioners in the process.