Tax Notes logo

Designated Orders: 5/22/2017 – 5/26/2017

Posted on June 2, 2017

Today we welcome back Caleb Smith who has prepared this week’s analysis of designated orders and it has been an interesting week at the Court.  Today is also Caleb’s last day at the Harvard Tax Clinic.  He leaves tomorrow to return home and direct the tax clinic at the University of Minnesota.  We wish him well as he transitions and look forward to continuing to see his input in the blog.  Keith

A Font of Discord

Dkt. #s 2685-11 and 8393-12, Dynamo Holdings Limited Partnership, Dynamo, GP. Inc. Tax Matters Partner, et al. v. C.I.R. (Order Here)

We begin with a designated order from a case that began way back in 2011. The online docket shows roughly 250 filings and proceedings entered with the Tax Court since then. The trial itself, occurring just this year, took essentially two weeks from January 23 – February 3 and February 13. With a designated order arising from a case of this size and duration, one may fairly speculate that something big is at play.

And that “something big” is (allegedly) the font of petitioner’s post-trial opening brief.

Yes, today’s headlining designated order from Judge Buch is a battle over a post-trial brief potentially circumventing page limitations by using a smaller font size than is allowed. The eagle-eyed IRS attorneys are having none of it. There are, after all, very specific rules that dictate the size of font and style of briefs with the Tax Court (specifically, Tax Court Rule 23). Those rules provide, among other things, that the size of the font should be no smaller than either 12 point or 14 point depending on if it is “nonproportional” or “proportional” print font (the larger, 14 point mandated for the latter). Times New Roman (being a proportional print font) may be no smaller than 14 point. And this is where the IRS believes they caught petitioner trying to pull a quick one: submitting a post-trial brief that runs right up against the allotted 120 page limit in Times New Roman, but possibly smaller than 14 point font.

The Court does not take this potential infraction lightly (and after 6 years and roughly 250 filings, one can sympathize with insisting on strict page limits). In the Court’s view it is not immediately clear that petitioner did skirt the rules, but there at least seems to be good reason to believe it a possibility (the brief comes in at exactly the allowed 120 pages, so there is little margin of error in any case). In the end, rather than risk the “back-and forth of motion practice” taking up still more of the Court’s time, Judge Buch provides a sensible ultimatum to petitioner:

  • Certify that you followed the rules while providing an ELECTRONIC COPY of the brief, (should put the questions to rest, right?), or
  • Admit you made a mistake, and deal with fix it by amending the brief through deleting text.

This seems to be a fair and efficient way to call the bluff of the petitioner. With an electronic copy on hand, I would imagine it not particularly difficult to determine if the font and other formatting rules were followed: petitioner should have no worries certifying to that if they did in fact follow the rules. On the other hand, it is entirely possible that petitioner either tried to pull a quick one or made an honest mistake. Sorting that out could take a lot of the court’s time, and devoting too much time to that flies in the face of one reason for the page limitation to begin with.

And so, petitioner has the option to simply fix the mistake… with one rather large constraint. Changing the arguments to make them more concise, it appears, is not allowed: only deletions. The Court requires a “redline” copy of the amended brief, presumably to help demonstrate that the only edits were deletions and not reworded arguments. Presumably, the authors of the brief believed that every sentence was necessary (or played some necessary role). If the font was in fact too large, they may have to eliminate entire PAGES of their arguments. A quick, extraordinarily unscientific experiment on Microsoft Word leads me to estimate that one page of 12 point Times New Roman print is equal to about one and quarter page of 14 point Times New Roman print… without doing the math I’d say that having to cut that much of an argument is not an enviable position to be in.

A Couple Observations

  • Formatting Matters

For those that do not frequently practice before the Tax Court (or any court, for that matter) the fact that there are specific rules on formatting of briefs (and that the Court really cares about them) may be somewhat surprising. It may look like yet another example of the legal profession trying to render itself inaccessible to the public through formalisms. And, in some instances, I sympathize (I cannot for the life of me figure out the rationale behind some of the local rules of appellate courts). Fairly or not, however, the format of your brief may be seen as a reflection of your sophistication. Consciously or otherwise, people do judge books by their covers. It is probably a better position to have the reader begin with the impression that you are an authority on the subject, who has submitted briefs before.

  • Keep it BRIEF

When I was in law school, Chief Justice Roberts made a surprise visit to my 1L legal writing class. We were writing appellate briefs at the time and he was gracious enough to answer our questions about what makes them (and oral argument) effective. More than anything, I remember one piece of advice that I have since heard echoed from various corners: focus on your main point. Remember that Judges (and even Justices) are human. (I have it on good authority that at least one judge prefers 14 point font for the simple fact that it is easier to read.) You can potentially cause your argument harm by going into too great detail on issues that aren’t really paramount: namely, by losing the audience’s attention. I have not looked into the substance of this case, and it is entirely possible that all 120 pages (and more) are needed even to concisely address each issue. But even so, Judge Buch notes that the parties could have, by motion, asked for additional space at an earlier time. It is worth noting that the Tax Court does NOT have a general page limit rule on briefs: to the extent that there is one, it is set by the judge hearing the case. That said if the Judge initially thinks 120 pages is enough it probably is.

Undoing an Intervention

Dkt. # 17166-16, Dennis v. C.I.R. (Order Here)

There has been a string of interesting cases involving Innocent Spouse relief lately (here, here, and here). This designated order touches on an apparently infrequently raised aspect: the ability of an intervening party to get out of the case after they have decided to intervene.

Innocent spouse cases tend to create an interested party apart from the IRS or petitioner: namely, the (usually ex) spouse that is going to be left holding the tax bill. In such a case, the jointly liable party has the right to file as an intervening party, usually to question the petitioner and prove that they knew (or should have known) about everything going into the tax return or failure to pay. The Court automatically notifies the other liable party on the filing of an innocent spouse case in court (see Rule 325 here).

This “third-party” interest can lead to trials where there otherwise wouldn’t be one. I have witnessed a Tax Court case where the IRS conceded that the petitioner should get innocent spouse relief, but the case went to trial solely because of the intervening ex. This makes legal sense, but nonetheless provides a somewhat awkward courtroom dynamic, where IRS counsel is basically sitting silent at their desk, watching acrimony unfold before them where they no longer have much of a dog in the fight. More commonly, I have seen interveners simply fail to show up or make any effort to comply with the Tax Court beyond filing their appearance. This case has the much rarer breed of intervener: the one that no longer cares about the case, but actively wants to be removed from it.

The ex-husband intervener has a couple good reasons to not want to remain on the case: (1) the IRS already gave him the relief he wants from the underlying liability, and (2) the case will be tried in Virginia, whereas he lives in New York. There is nothing to gain, and only money (in travel costs) to lose by coming to court. I think that most interveners, reaching that conclusion, would simply begin to ignore the Court and impending trial date.

But the ex, to his credit, wants to make it official with the Court that he will not be intervening. This, apparently, is so rare that the Tax Court has no rule governing how an intervener withdraws. Thus Special Trial Judge Carluzzo looks to the Federal Rules of Civil Procedure for guidance. The rule on point is FRCP R. 21, which gives discretion to courts to remove dispensable parties. The first step is determining that the party is, in fact, dispensable.

Luckily for Mr. Wilcox, the Court has no trouble reaching that conclusion. Yes, he might be called as a witness, but apparently the issues at play in this particular case (largely stipulated, or on the verge of being stipulated) don’t render Mr. Wilcox indispensable to the proceeding. Accordingly, he is allowed to withdraw.

A Parting Thought

The implication and involvement of the other party begins even at the administrative stage: the “non-requesting” spouse is notified of the Innocent Spouse Request and sent a questionnaire. While there is no evidence of any bad behavior in this case, because innocent spouse often involves abusive exes at the administrative stage it can be important to let the requesting spouse (i.e. your client) know that the IRS will contact the other party and “is required to do so by law” (as it says in the third bullet point of Form 8857). The IRS won’t disclose the address or contact information of the requesting spouse at the administrative level. However, since Tax Court information is generally public the petitioner would have to ask the Court to withhold or seal such information.

Summarily Denying Summary Judgment

Dkt. # 3106-16 L, Flannery v. C.I.R. (Order Here)

In a roughly one-page order, soon-to-be-Chief Special Trial Judge Carluzzo is assigned to a case solely for the purpose of making short work of an IRS motion for summary judgment. The order almost reads as a black-letter flashcard for students trying to memorize the summary judgment standard. The Court quickly explains when summary judgment is appropriate (“only if there are no genuine issues of material fact and the moving party is entitled to decision as a matter of law”). The Court just as quickly explains why this is not the case, “Questions as to petitioners’ beneficial ownership interest in certain real properties, […], are raised in this matter. The resolution of the factual dispute between the parties on the point is material in the determination of which party is entitled to decision.”

From the publicly available documents in the docket it is somewhat surprising that the IRS sought summary judgment at all since the issues (revolving around petitioner’s ownership interest in property) seem to be very factual, and very much in dispute. Nevertheless, the IRS filed a motion for summary judgment asserting that the case could be decided without trial because “there are no genuine issues for trial/no material facts in dispute.”

The IRS’s occasional woes with summary judgment have been well documented on Procedurally Taxing (here and here). In the cases highlighted in previous posts, the IRS motion generally fails because it does not introduce sufficient facts to support the motion. This case, at least based on the order dismissing the motion, seems somewhat different: maybe the IRS did introduce sufficient facts, but they are plainly disputed by petitioner. Perhaps the motion served to narrow down exactly what issues are in play… but one would think that could have been worked through Appeals by now (it should also be noted that petitioners are represented by counsel).

More charitably, it is possible that Petitioner did not provide much of a factual basis for why they disagreed with the IRS and why it was an abuse of discretion until they replied to the motion for summary judgment. On the record available to me I can do little more than speculate. Still, one wonders how these issues couldn’t have been apparent (i.e. if there was a factual dispute or not) without having the Court weigh in on a motion for summary judgment, especially since the case had already been remanded to Appeals once.

Copy RID