Tax Notes logo

Getting to Yes, Sooner

Posted on Sep. 17, 2015

We welcome back guest blogger Scott A. Schumacher who writes on new initiatives to resolve pro se Tax Court cases at an earlier stage. Scott directs the low income taxpayer clinic at the University of Washington and its graduate tax program. He is a former Tax Court clerk and Department of Justice attorney with a deep knowledge of the system. Keith

Among the things that make litigating in the United States Tax Court unique are the stipulation process and the Court’s informal discovery rules. Rule 91 requires the parties to stipulate “all matters not privileged which are relevant to the pending case, regardless of whether such matters involve fact or opinion or the application of law to fact.” Rule 70 provides that “the Court expects the parties to attempt to attain the objectives of discovery through informal consultation or communication before utilizing the discovery procedures” allowed under the Court’s rules. Both of these rules are designed to encourage the parties to resolve as much of their case as possible prior to trial, and to make the trials as short and expeditious as possible, without unnecessary participation by the Tax Court.

The rules governing the pre-trial process are also designed to facilitate settlement of cases. Tax Court Judges based in Washington, D.C., attending trial session for a week or two in a given city, simply cannot try all of the cases set for the particular trial session. These rules do indeed work, and the vast majority of cases settle prior to trial. Of course, this is not unique to the Tax Court. Indeed, at least 95 percent of civil cases in the federal courts settle, which is similar to Tax Court statistics. What is different is the percentage of pro se litigants in the Tax Court, which can impact the timing of settlements. Approximately 70 percent of the cases in Tax Court are filed pro se, nearly three times the percentage of civil cases filed by pro se litigants in other federal courts.

For various reasons, stemming from a lack of understanding of tax law or tax procedure, fear, sloth, lack of resources, illness or all of the above, pro se litigants often do not settle cases that could – and should – be settled easily and early in the process. They have no ability to evaluate the strength of their case and whether or on what terms they should settle. They also do not know which facts and documents should be stipulated to and, indeed, which facts are relevant to their case. The cooperative winnowing process of Rules 70 and 91 often does not work as anticipated with unrepresented litigants. As a result, the courtroom at a Tax Court calendar call is pullulating with perplexed pro se petitioners who have no idea why they are there and what their case is about. Many of them meet with an IRS attorney for the first time at the calendar call. The reality of their impending appearance before a federal judge spurs them into action. Accordingly, many cases settle on the day of the calendar call.

Low-Income Taxpayer Clinics and pro bono attorneys have long been integral to this calendar call settlement process. The ABA Tax Section and the Tax Court have worked with clinics and volunteer attorneys to marshal resources at calendar to assist taxpayers at that point. These attorneys provide expert knowledge of the tax law, tax procedure, and the Court’s rules, and advise on the likelihood of success on a case. Equally important, this advice is coming from a neutral party that petitioners believe they can trust. Nonetheless, this process is far from perfect. At calendar call the attorneys working with the petitioner often have only a few minutes to evaluate, negotiate, and resolve cases, and the petitioner’s case may require further development that cannot be accomplished during the trial calendar. In addition, waiting until the calendar call to resolve these cases requires the IRS to prepare and submit pretrial memoranda, copy exhibits, call witnesses and do all of the things necessary to succeed at trial. It also requires the Court to do preparation work for each case still at issue at the time of calendar call. The current process can interject needless uncertainty and extra work into the week’s trial calendar.

In an effort deal with these shortcomings, IRS counsel, LITCs, and other pro bono attorneys have employed various methods to deal with this crush of time. In some cities, the lawyers arrive at the courthouse an hour before the calendar call and meet with potential petitioners before their case is called. While this adds some time to the process, it does not address all of the issues. In Baltimore, IRS counsel and the LITCs developed a program where the LITCs host settlement conferences attended by pro se petitioners and IRS counsel, with the LITCs and pro bono attorneys acting as intermediaries. These sessions are held approximately six weeks prior to the calendar call and are designed to replicate the process that occurs at the calendar call, but without the pressure of time. In addition, if the case cannot be resolved during that session, the parties have additional time to exchange documents and continue negotiations. The cast of characters has been expanded to include employees from IRS Appeals, Exam, Collections and the Taxpayer Advocate Service, providing a more thorough and holistic resolution of the taxpayer’s case.

These “pro bono days” or “tax clinic days” have been quite successful in resolving cases, and they have been replicated in several cities around the country. My clinic at the University of Washington in Seattle has participated in several of these, and we find the process much better than the one that occurs at calendar calls.

The biggest issue with these pro bono days is getting petitioners to actually participate in the process. While all pro se petitioners are invited, few respond. IRS Counsel and the LITC and pro bono programs in the Los Angeles area recently adopted a process where the settlement conferences or pro bono days are conducted as part of the Branerton conference. As readers of this blog know, Tax Court rules require the parties to meet and informally exchange information and documents prior to engaging in formal discovery, the so-called Branerton conference. Since pro se petitioners are required, at least in theory, to meet with IRS counsel at the Branerton conference, the idea is that more of these petitioners will participate in a settlement conference. So far, the participation rate has been appreciably higher, and the feedback has been very positive.

More can be done. In this regard, IRS Chief Counsel William Wilkins has suggested that the Tax Court require pro se litigants to participate in “Status Calendars.” These would require pro se petitioners to appear by telephone before a Tax Court Judge so that the Court can ascertain the status of the case. LITCs and IRS counsel would also participate in these calls. During the call, the judge would inquire about the status and make it clear that the parties must meet prior to the calendar call to discuss the case. Under Wilkins’ proposal, a case would not be calendared for trial until a pro se petitioner had participated in a Status Calendar call or a motion to calendar for trial had been filed.

Regardless of the method chosen, active participation by the Tax Court in the early settlement process can only increase participation in these programs. This, as Martha Stewart would say, is a good thing. As a result of the innovations to-date, not only have more cases been settled and settled earlier in the process, I am convinced the settlements reached are more just for petitioners. Settlements at the calendar call are, by definition, hastily reached, and the petitioner may well have left issues on the table. The additional time, case development, and more extensive participation by attorneys at the pro bono days allows for a better presentation of the taxpayer’s case. Whatever the Court can do to encourage pro se petitioners to participate in a settlement conference as early as possible will benefit all parties involved.

Copy RID