Professor Patrick Thomas who runs the Tax Clinic at Notre Dame brings us this week’s Designated Orders, which involve judicial recusal, the assessment of too much penalty in a situation where maybe too little penalty was imposed and the effect of failing to request on CDP hearing on what can be raised in future CDP hearing concerning the same tax period. Keith
Another light week for designated orders in number, though the few orders are high in content and taxpayer chicanery. In addition to two orders from Judge Jacobs, we have a bench opinion from Chief Special Trial Judge Carluzzo and two orders on motions for summary judgment in CDP cases: one from Judge Guy and another from Judge Buch.
Bench Opinion on Motion to Disqualify
Dkt. # 8667-16, Liu v. C.I.R. (Order Here)
This “order” from Judge Carluzzo is really an opinion—specifically, a bench opinion under section 7459(b) and Tax Court Rule 152. The designated order merely transmits the transcript of the underlying bench opinion to the parties. In a separate (non-designated) order, Judge Carluzzo denies the petitioners’ various motions.
Throughout the litigation, which began in April 2016, petitioner has filed the following motions:
- Motion to Dismiss for Abuse of Discretion and Invalid Notice of Deficiency (10/12/2016)
- Motion for Summary Judgment (12/17/2016)
- Motion to Dismiss for Lack of Jurisdiction (7/10/2017)
- Motion to Object to Judge’s Orders (7/17/2017)
- Motion to Disqualify Special Trial Judge and to Rehear from Chief Judge (7/28/2017)
- Motion for Chief Judge to Disqualify Special Trial Judge/Motion to Dismiss for Lack of Jurisdiction (8/14/2017)
The first and sixth motions were denied by Chief Judge Marvel. Judge Carluzzo handles the remaining four in this bench opinion.
Regarding the motion to disqualify (Judge Carluzzo lumps the “Motion to Object to Judge’s Orders” in with the motion to disqualify), Mr. Liu argued that Judge Carluzzo should be disqualified from this proceeding, due to prior involvement in another Tax Court case of Mr. Liu’s (Docket # 16841-14). In that case, Judge Carluzzo denied the Mr. Liu’s motion to vacate the decision, and was affirmed by the Fifth Circuit.
In reading the Fifth Circuit’s opinion, it becomes clearer that this petitioner sees conflicts and conspiracy around every corner. Mr. Liu there alleged that their attorney (who had worked previously in IRS Chief Counsel’s Houston office) had conspired with respondent’s counsel to negotiate an unfavorable settlement. After Judge Carluzzo denied the motion to vacate, the petitioner then filed a misconduct complaint with the Chief Judge. And, believing that Judge Carluzzo would himself resolve that misconduct complaint, the Mr. Liu filed the motion to disqualify in the present case.
In analyzing whether he must recuse himself, Judge Carluzzo notes that he need not judge the credibility of any witnesses, as the other motions he will resolve on “technical grounds.” Indeed, the motion to dismiss is denied because the petitioner challenges the merits of the Notice of Deficiency, rather than its validity. The summary judgment motion is likewise denied because there are no stipulated facts in the case that could give rise to summary judgment. Easy calls on both counts.
But I’m not sure that’s the appropriate analysis for adjudicating a recusal motion. While Judge Carluzzo is undoubtedly correct in not recusing himself and further dragging out this litigation, a judge may very well demonstrate bias towards a litigant through analysis of “technical” matters, just as that bias may cause her to more easily question the credibility of a witness.
But conversely, and more importantly, even if Judge Carluzzo was required to judge the credibility of a witness, he still need not recuse himself. Mr. Liu is miffed here because Judge Carluzzo ruled against him in a prior proceeding. Tough cookies. Prior “adverse rulings are not indications of bias or grounds for disqualification….” Patmon v. C.I.R., T.C. Memo. 2009-299. Rather than leaving a door open for litigious petitioners, the Court should clearly state this rule in future recusal cases, where appropriate.
The Never-ending Saga of 1991
Dkt. #18530-16L, Golub v. C.I.R. (Order Here)
While Mr. Liu’s antics appear merely misguided, it’s Mr. Golub—a one-time Certified Public Accountant—that truly draws the Court’s collective ire. The matter at issue relates to a tax liability for 1991, which resulted from a nearly $300,000 income tax deficiency assessment following Tax Court review. See Golub v. C.I.R., T.C. Memo. 1999-288. The Tax Court also imposed a $10,000 penalty under section 6673(a) for maintaining a frivolous position. After the Service’s collection attempts failed, they filed a Notice of Federal Tax Lien regarding the unpaid 1991 liability. Mr. Golub requested a CDP hearing, petitioned the Tax Court for review, and lost in the Tax Court in 2008. His position was that the 1991 liability was erroneous (an argument that, mind you, the Tax Court found to be frivolous in the deficiency case).
The Court then notes that “Petitioner continued to attempt to dispute his tax liability for 1991 by overstating the amount of his estimated tax payments for the taxable year 2008.” Looking at the opinion that resulted from that controversy, Golub v. C.I.R., T.C. Memo. 2013-196, Mr. Golub argued again that his 1991 liability was erroneous; he listed refund offsets made towards the 1991 liability as estimated tax payments towards 2008. The Service issued a Notice of Intent to Levy under section 6330 and Mr. Golub in turn requested a CDP hearing, lost, requested Tax Court review, and lost again. To boot, the Tax Court assessed another penalty under section 6673. In the memorandum opinion, the Tax Court desired to impose a $15,000 penalty, specifically noting that though Mr. Golub promised to “never cease” litigating his 1991 liability, he would face an “ever-increasing price” for doing so (or at least, ever-increasing until the $25,000 statutory cap?). For some reason, however, only a $10,000 penalty was ordered. It appears that eventually, Mr. Golub’s e-filing privileges with the Tax Court were also revoked due to filing various motions while his appeal of this decision was pending.
This brings us, finally, to the present litigation. The Service initially assessed a $15,000 penalty, presumably relying on the memorandum opinion, then sent a Notice CP92 after seizing Mr. Golub’s state tax refund. This Notice carries post-levy CDP rights under section 6330(f)(2), and so Mr. Golub again requested a CDP hearing, again argued that his 1991 tax liability was erroneous, and again petitioned the Tax Court for review. On these facts, one might sense that a $20,000 section 6673 penalty is forthcoming.
But the Tax Court and Service made a bit of a foot fault here: the Court in ordering a $10,000 penalty, rather than $15,000, and the Service in assessing a $15,000 penalty, rather than the $10,000 ordered. Because the Service seemed to notice its error only after Mr. Golub filed the petition, there was a clear discrepancy in the amount due. And while Judge Guy allows the Service to proceed with levy of the section 6673 penalty, he does not impose an additional penalty—even though he notes that the taxpayer “clearly instituted this proceeding primarily for purposes of delay.” Given the history of this case and his tenacity, I have no doubts that Mr. Golub will achieve a $25,000 penalty someday.
Not All CDP Hearings are Alike – Another Challenge to the Underlying Liability
Dkt. # 27175-14L, Minority Health Coalition of Marion Co., Inc. v. C.I.R. (Order Here)
This case involves employment tax liabilities, which are less often seen in the Tax Court. Ordinarily, because employment taxes are assessed either summarily after a return is filed or after notice and demand (likewise with the Trust Fund Recovery Penalty, which is an assessable penalty), a taxpayer’s only opportunity to dispute such debts comes after paying the tax, filing a refund claim with the Service, and then suing in federal district court or the Court of Federal Claims for a refund. If you’re looking for judicial tax experts, such as exist in the Tax Court, you’re largely out of luck.
The 1998 Reform Act created an exception to this scheme. While taxpayers ordinarily cannot challenge the underlying liability in a Collection Due Process hearing, they may do so if they have (1) not received a Notice of Deficiency (if one was required to assess the tax) or (2) have not otherwise had an opportunity to dispute the liability. We’ve blogged previously on just what a “prior opportunity” means: most litigated cases suggest that this means only an administrative opportunity, rather than a judicial opportunity. See Lewis v. C.I.R., 128 T.C. 48, 61 (2007). Taxpayers may challenge self-reported tax liabilities, in addition to those that the Service has assessed. Montgomery v. C.I.R., 122 T.C. 1, 8-9 (2004). In most cases of that type, the taxpayer hasn’t had any prior opportunity to dispute the liability.
In Minority Health Coalition, the taxpayer timely filed its 941 returns, but didn’t pay the tax reported. The Service filed Notices of Intent to Levy for 2010, 2011, 2012, and the first and third quarters of 2013. The taxpayer did not respond to those notices. The Service then filed a Notice of Federal Tax Lien as for the same periods, plus the second quarter of 2013. This time, the taxpayer filed a CDP hearing request, asking for an installment agreement and verification of the balance owed. The Service denied the IA, allegedly because the taxpayer wasn’t keeping up with its federal tax deposits.
As I can’t read the motions on the online docket, I assume that the taxpayer is challenging the underlying liability in Tax Court. But the Court states that regarding each of the NFTLs, the taxpayer did not challenge the underlying liability in the CDP hearing. While it’s certainly possible to challenge even a self-reported liability in this context, failure to raise the issue is conceivably itself a waiver of that issue in the Tax Court.
Regardless, the Court finds that for each of the liabilities, except the second quarter of 2013, the taxpayer had a prior opportunity to dispute the liabilities, but failed to take advantage of that opportunity. Namely, the unanswered Notices of Intent to Levy provided this opportunity, but the taxpayer did not request a CDP hearing for any of these years. For some reason, the second quarter of 2013 was not included in this slew of levy notices, and so the taxpayer may legitimately pursue the underlying liability issue in Tax Court for that quarter.
The takeaway points for taxpayers (and practitioners) here is to always request a CDP hearing after the first levy or lien notice. Otherwise, the ability to contest the underlying liability will be waived, even if you’re able to timely request a hearing when the second notice comes around. The 30 day deadlines at play here can prove challenging, especially for pro se taxpayers, like occurred here.
I’m attending the calendar call in Indianapolis on Monday, October 30th, so I’ll be interested to see whether a representative from the taxpayer appears to dispute the remaining quarter.