Professor Patrick Thomas of Notre Dame Law School writes about last known address, discovery and whistleblower issues in this week’s edition of Designated Orders. Les
Last week’s designated orders were quite the mixed bunch: a number of orders in whistleblower cases; a last known address issue; and a discovery order in a major transfer pricing dispute between Coca Cola and the federal government. Other designated orders included Judge Guy’s order granting an IRS motion for summary judgment as to a non-responsive CDP petitioner; Judge Holmes’s order on remand from the Ninth Circuit in a tax shelter TEFRA proceeding; and Judge Holmes’s order in a whistleblower proceeding subject to Rule 345’s privacy protections.
Last Known Address: Dkt. # 23490-16, Garcia v. C.I.R. (Order Here)
In Garcia, Judge Armen addresses whether the Service sent the Notice of Deficiency to Petitioner’s last known address. As most readers know, deficiency jurisdiction in the Tax Court depends on (1) a valid Notice of Deficiency and (2) a timely filed Petition. Failing either, the Tax Court must dismiss the case for lack of jurisdiction. If the Petition is not timely filed in response to a validly mailed notice of deficiency, the taxpayer is out of luck; the Service’s deficiency determination will stick. The Service can also potentially deprive the Court of jurisdiction through failure to send the Notice of Deficiency to the taxpayer’s last known address by certified or registered mail under section 6212, though the Court will have jurisdiction if the taxpayer receives a Notice of Deficiency that is not properly sent to the last known address and timely petitions. While a petitioner could be personally served with a Notice of Deficiency, this rarely occurs.
Perhaps counterintuitively for new practitioners, the remedy for this latter failure is a motion to dismiss for lack of jurisdiction. Unlike a jurisdictional dismissal for an untimely petition, this motion can substantially benefit the taxpayer. A successful motion will require the Service to re-issue the Notice to the proper address—or else otherwise properly serve it on the taxpayer. If the Service fails to do so within the assessment statute of limitation under section 6501, no additional tax liability may be assessed. This motion is thus a very powerful tool for practitioners in the right circumstances.
Here, the Court dealt with two motions to dismiss for lack of jurisdiction: the Service’s based on an untimely petition, and Petitioner’s based on failure to send the Notice to the last known address. Petitioner had sent multiple documents to the Service, and the Service to the taxpayer, as follows:
|February 25, 2015
|2014 Tax Return
|Twin Leaf Drive
|2011 Amended Return
|October 30, 2015
|Power of Attorney
|Twin Leaf Drive
|November 10, 2015
|Letter 1912 re: 2014 Exam
|February 12, 2016
|2015 Tax Return
|March 8, 2016
|2014 Notice of Deficiency
|October 17, 2016
|Collection Notice re: 2014
Judge Armen held that the Service did send the Notice to the proper address, despite the ambiguities present here. Petitioner argued that because his attorney had filed a Form 2848 with the Twin Leaf Drive address after he filed his 2011 Amended Return, the Form 2848 changed the last known address to Twin Leaf. The Notice of Deficiency wasn’t sent to that address; ergo, no valid notice.
But Petitioner’s filed his 2015 return using the Brownfield Drive address, prior to issuance of the Notice of Deficiency. Petitioner argued that the regulations governing the last known address issue requires both (1) a filed and (2) properly processed return. Reg. § 301.6212-2(a). In turn, Rev. Proc. 2010-16 defines “properly processed” as 45 days after the receipt of the return. Because the Notice was issued before this “properly processed” date (March 28), the last known address, according to Petitioner, should have been the Twin Leaf Drive address as noted on the most recent document filed with the Service: the October 30, 2015 Form 2848.
Judge Armen chastises petitioner for “using Rev. Proc. 2010-16 as a sword and not recognizing that it represents a shield designed to give respondent reasonable time to process the tens of millions of returns that are received during filing season.” Further, Judge Armen assumes that the Service actually processed the return much quicker (“Here petitioner would penalize respondent for being efficient, i.e., processing petitioner’s 2015 return well before the 45-day processing period….”
I’m not sure that the facts from the order support that conclusion. There is no indication of when Petitioner’s 2015 return was processed by the Service such that they could use it to conclusively determine the last known address. Judge Armen seems to avoid this issue by assuming (perhaps correctly) that the return was processed before the Notice of Deficiency was issued. Unless certain facts are missing from the Order, this seems like an assumption alone.
If the Service did not have the 2015 return on file, or had sent the Notice prior to February 12, 2016, then they would have waded into murkier waters. As Judge Armen alludes to, the Service does not view a power of attorney as conclusively establishing a change of address. Rev. Proc. 2010-16, § 5.01(4). The Tax Court has disagreed with this position previously. See Hunter v. Comm’r, T.C. Memo. 2004-81; Downing v. Comm’r, T.C. Memo. 2007-291.
Discovery Dispute Regarding Production of Documents and Response to Interogatories: Dkt. # 31183-15, The Coca-Cola Company and Subsidiaries v. C.I.R. (Order Here)
Judge Lauber denied a portion of the Service’s request to compel the production of documents and responses to interrogatories in the ongoing litigation regarding Coca-Cola’s transfer pricing structure. I’d do our reader’s a disservice by touching transfer pricing with a ten-foot pole. Rather, I’ll focus on the discovery issue at play.
Regarding the motion to compel production of documents, the Service had sought “all documents and electronically stored information that petitioner may use to support any claim or defense regarding respondent’s determination.” The parties had previously agreed to exchange all documents by February 12, 2018. Coca Cola argued that by demanding all such documents presently, the Service was attempting to get around the pretrial order.
Judge Lauber agreed with Coca Cola, especially because certain claims of privilege were unresolved, and expert witness reports and workpapers had not yet been exchanged. In essence, Coca Cola was unable to provide “all documents” upon which they might rely at trial, as they were unable to even identify all of those documents presently due to these unresolved issues. Judge Lauber cautioned Coca Cola, however, to avoid an “inappropriate ‘document dump’” on February 12, by continuing to stipulate to facts and to exchange relevant documents in advance of this date.
The motion to compel response to interrogatories centered on private letter rulings that Coca Cola received under section 367 (which restricts nonrecognition of gain on property transfers to certain foreign corporations). The Service wanted Coca Cola to “explain how the [section 367 rulings] relate to the errors alleged with respect to Respondent’s income allocations” and “identify Supply Point(s) [Coca Cola’s controlled entities] and specify the amount of Respondent’s income allocation that is affected by the transactions subject to the [section 367 rulings]”. While Coca Cola had already identified the entities and transactions relevant to the section 367 rulings, and had provided a “clear and concise statement that places respondent on notice of how the section 367 rulings relate to the adjustments in dispute”, the Service apparently wanted more detail on how precisely the private letter rulings were relevant to Coca Cola’s legal argument.
Coca Cola, and Judge Lauber, viewed this request as premature. Nothing in the Tax Court’s discovery rules require disclosure of legal authorities. Moreover, Judge Lauber cited other non-Tax Court cases holding that such requests in discovery are impermissible. Any disclosure of an expert witness analysis was likewise premature, at least before the expert witness reports are exchanged.
Two orders came out this week in this non-protected whistleblower case. Unlike Judge Holmes’s order mentioned briefly above, we can actually tell what’s going on in this case, as Petitioner has apparently not sought any protection under Rule 345. Chief Judge Marvel issued the first order, which responded to petitioner’s request for the Chief Judge to review a number of orders that Special Trial Judge Carluzzo had previously rendered. Specifically, Petitioner desired Chief Judge Marvel to review the denials of motions to disqualify counsel, to strike an unsworn declaration from the Service, and to compel interrogatories and sanctions.
While the Chief Judge has general supervisory authority over Special Trial Judges under in whistleblower actions under Rule 182(d), Chief Judge Marvel denied the motion, given that these motions were “non-dispositive”.
The second order by Judge Carluzzo did resolve a dispositive motion for summary judgment. Perhaps we shall see a renewal of a similar motion before Chief Judge Marvel in this matter.
The Service had initially denied the whistleblower claim due to speculative and non-credible information. Additionally, however, an award under the whistleblowing statute (section 7623(b)) requires that the Service initiated an administrative or judicial proceeding against the entity subject to a whistleblowing complaint. Further, the Service needs to have collected underpaid tax from that entity for an award, as the award is ordinarily limited to 15% of the amount collected. Neither of those occurred in this matter, and on that basis, Judge Carluzzo granted the motion for summary judgment, upholding the denial of the whistleblowing claim.
This case again reminds pro se petitioners to attend their Tax Court hearings and respond to the Service’s motions for summary judgment. The Petitioner did not attend the summary judgment hearing, because (according to her) the hearing regarded both the Service’s motion for summary judgment as well as her motion to compel discovery. Whatever her reason for not attending the hearing or responding to the motion, all facts provided by the Service were accepted, and the Court assumed there was no genuine dispute as to any material facts: a recipe for disaster for the non-movant in a summary judgment setting.