We welcome back frequent guest blogger Carl Smith who writes about an interesting development regarding the government’s view of the effect of electing small case status in a Tax Court case. Keith
I write this post because I am sure that what the DOJ is arguing in the Tenth Circuit is, if accepted, going to be a shock to both the Tax Court and the IRS. I suspect that the latter has no idea that the DOJ is trying to take away a case management tool it has been using for almost 50 years. The DOJ is arguing that under section 7463(d), the sole circumstance in which the Tax Court may remove a small tax case designation is when it is belatedly discovered that the $50,000 amount in dispute limit for small tax cases has been exceeded. The DOJ argues that legislative history (relied on by the IRS and Tax Court over the years) that suggests other reasons for removing the small tax case designation (such as to create precedential rulings either in the Tax Court or the appellate courts) should be ignored, as the statute itself is clear.
Section 7463 gives taxpayers the option (concurred in by the Tax Court pre-trial) to designate a case as a small tax case. The scope of the authority to remove the small tax case designation is one thing at issue in the Tenth Circuit in an appeal of Vu v. Commissioner, T.C. Summary Op. 2016-75 – a case on which Les previously blogged here.
In Vu, the taxpayer filed a pro se innocent spouse petition under section 6015(e) too early (though she had no reason to think so). The IRS filed an answer that did not allege any premature filing. By the time that the IRS moved to dismiss her case for lack of jurisdiction as prematurely filed, she could no longer correct her error by timely filing another petition. Judge Ashford stated that she had to dismiss the petition for lack of jurisdiction because the filing deadlines in section 6015(e) are jurisdictional. Though, as she did so, Judge Ashford herself wrote that “this is an inequitable result”.
At that point, Keith and I stepped in to represent Ms. Vu pro bono and moved for reconsideration, to vacate, and to remove the small tax case designation.
In the motions for reconsideration and to vacate, we argued that (1) under current Supreme Court case law, the filing deadlines are not jurisdictional and (2) the IRS waited too long to raise – and so forfeited – what is really a non-jurisdictional statute of limitations defense. At the time we made those arguments, the Tax Court in Pollock v. Commissioner, 132 T.C. 21 (2009), had held the 90-day filing deadline in section 6015(e) to be jurisdictional – based, in part, on Supreme Court case law up to 2009. But, no court of appeals had ruled one way or the other on whether the filing deadlines in section 6015(e) are jurisdictional.
In our motion to remove the small tax case designation, we pointed out the novelty of the jurisdictional issue in the appellate courts, that Ms. Vu’s case (if the designation were removed) could be appealed to the Tenth Circuit, and that the issue of whether the section 6015(e) 90-day filing deadline is jurisdictional was presented in two then-pending Circuit courts in appeals that Keith and I had also brought.
Rather than ruling immediately, Judge Ashford waited until the Second and Third Circuits held the 90-day period in section 6015(e) jurisdictional in Rubel v. Commissioner, 856 F.3d 301 (3d Cir. 2017), and Matuszak v. Commissioner, 862 F.3d 192 (2d Cir. 2017). Then, relying on Pollock, Rubel, and Matuszak, Judge Ashford denied the motions to reconsider and to vacate.
In the same order (on which Patrick Thomas blogged here in a designated order post), Judge Ashford also denied Ms. Vu’s motion to remove the small tax case designation. Judge Ashford noted that the amount in dispute in the case did not exceed $50,000. She also thought there was now enough precedent on the jurisdictional issue adverse to Ms. Vu so as not to justify removing the designation so that Ms. Vu could attempt to create Tenth Circuit precedent. The Judge also felt that, while technically timely (since the motion was made before the decision was final or any trial began), granting a motion to remove the small tax case designation after the judge had already issued an opinion “violates the spirit of the Court’s small tax case rules”.
Section 7463(b) states, in part: “A decision entered in any case in which the proceedings are conducted under this section shall not be reviewed . . . .”
Section 7463(d) states, in relevant part:
At any time before a decision entered in a case in which the proceedings are conducted under this section becomes final, the taxpayer or the Secretary may request that further proceedings under this section in such case be discontinued. The Tax Court, or the division thereof hearing such case, may, if it finds that (1) there are reasonable grounds for believing that the amount of the deficiency placed in dispute, or the amount of an overpayment, exceeds the applicable jurisdictional amount described in subsection (a), and (2) the amount of such excess is large enough to justify granting such request, discontinue further proceedings in such case under this section.
Legislative history states:
In view of the proposed increase in the small tax case jurisdictional amount to $5,000 it is contemplated that, the Tax Court will give careful consideration to a request by the Commissioner of Internal Revenue to remove a case from the small tax case procedures when the orderly conduct of the work of the Court or the administration of the tax laws would be better served by a regular trial of the case. . . . [R]emoval of the case from the small tax case category may be appropriate where a decision in the case will provide a precedent for the disposition of a substantial number of other cases or where an appellate court decision is needed on a significant issue.
- Rept. 95-1800 at 277-278.
Relying on this legislative history, the Tax Court, over the years, has taken the position (with which the IRS agreed) that it had the power to remove small tax case designations for pretty much any reason (if the taxpayer asked) and for the reasons stated in the legislative history (if the IRS asked or the court acted sua sponte). See, e.g., IRS Chief Counsel Memorandum 200115033, 2001 IRS CCA LEXIS 13 (Feb. 14, 2001) (“While the small tax case designation turns chiefly on the amount in dispute, the government has succeeded in having the small tax case designation removed in cases where a decision in the case will provide a precedent for the disposition of a substantial number of other cases or where an appellate court decision is needed on a significant issue.”) The Tax Court views the second sentence of section 7463(d) as providing merely an illustration of one of the grounds for removing small tax case designations, not the exclusive reason.
Despite our setback in not getting the Tax Court to remove the small tax case designation – which would have made an appeal easier – Keith and I appealed the Vu case to the Tenth Circuit (Docket No. 17-9007). That Circuit suspended briefing in the case and requested the parties to discuss its appellate jurisdiction in light of section 7463(b)’s prohibition on appeals from small tax cases.
On November 15, 2017, Keith and I filed a response to the Tenth Circuit arguing two grounds for appellate jurisdiction:
First, we contend that section 7463(b) does not preclude appellate review of certain procedural rulings of the Tax Court in small tax cases. This is a novel argument under section 7463(b). However, section 7429(f) precludes appellate review of district court or Tax Court determinations made in section 7429 jeopardy assessment proceedings, and the majority of courts of appeals to have considered the issue has held that review of section 7429 procedural rulings is not barred by the statute. See, e.g., Wapnick v. United States, 112 F.3d 74 (2d Cir. 1997) (“Following other circuits, we hold that this limitation applies only to decisions on the merits regarding the jeopardy assessment in question. A dismissal of a Section 7429 proceeding for lack of subject matter jurisdiction is, therefore, appealable.”; citations omitted). Keith and I argue that the limitation of appeal in small tax cases should similarly not preclude review of the Tax Court’s (in our view erroneous) dismissal of a small tax case for lack of jurisdiction.
Second, we take the position that a denial of a motion to remove a small tax case designation is itself appealable (also a novel issue on which there is no case law). We argue (1) that Judge Ashford abused her discretion in denying a taxpayer request that was technically timely, and (2) that the statute’s authorization of removal before a decision in a small tax case becomes final shows that Congress intended to have the Tax Court sometimes remove small tax case designations after the court had already ruled on an issue. Relying on the legislative history of section 7463(d) and long-standing Tax Court practice, we argue that Judge Ashford was wrong to deny Ms. Vu a chance to create Tenth Circuit precedent on a significant, novel legal issue in that Circuit.
In a response filed on November 30, 2017, the DOJ distinguished section 7429(f) precedent on the ground that the statute there precludes the review of “determination[s]”, not “decision[s]” (as in section 7463(b)). Most shockingly, though, the DOJ, while conceding that Ms. Vu timely filed her motion to remove the small tax designation, argues that section 7463(d) only allows the Tax Court to remove a small tax case designation where the court finds that the $50,000 jurisdictional amount in dispute limit is exceeded. The DOJ contends that the statute’s language plainly shows this, so the legislative history laying out other grounds for removing the small tax case designation should be disregarded.
On December 7, 2017, Keith and I filed a reply that showed the Tenth Circuit the long history of the Tax Court making determinations on motions to remove small tax case designations using the criteria set out in the legislative history (such as to create appellate precedent) – not just looking at whether the jurisdictional limit has been exceeded.
As a litigant in the Vu case, I don’t feel comfortable saying anything more than this: Whether the DOJ is right on the removal power’s scope, I am pretty certain that the DOJ did not consult with the IRS before making the argument that the only ground on which the Tax Court can remove a small tax case designation is that the jurisdictional limit has been exceeded. Indeed, it is ironic that Ms. Vu’s case is an innocent spouse case where an argument is untimely filing. It wasn’t too many years ago that the Tax Court in Lantz v. Commissioner, 132 T.C. 131 (2009), invalidated a 2-year limitation on requesting section 6015(f) equitable innocent spouse relief that was set out only in a regulation. In order to challenge this ruling in many Circuits, the IRS sought to remove small tax case designations in a number of pending Tax Court cases so that the IRS could create precedent in many Circuits (and hopefully generate a Circuit split). See Iljazi v. Commissioner, T.C. Summary Op. 2010-59 at p. *4 n.1, where I was counsel for the taxpayer and where Judge Panuthos denied the IRS motion – basically on the theory that taxpayer preferences to stay as small tax cases should generally be honored.