In the second of three posts covering the designated orders from September 9 – 13, we will take a look at petitioners that refuse to take “no” for an answer… even if they are eventually stuck with it. While most people (lawyer and layman alike) are aware of the ability to appeal a lower court decision to a higher one, few are familiar with the processes for asking the court to reconsider its own decision. Fortunately for those with the curiosity to learn more on this topic, we were blessed with three designated orders in one week which deal with exactly that phenomenon.
Asking the Court to “Change Its Mind,” Three Flavors of a Motion to Reconsider: Hurford Investment No. 2 Ltd. v. C.I.R., Dkt. # 23017-11 (order here)
Asking an appellate court to reverse a lower court is generally a difficult proposition -by some accounts the lower court is upheld roughly 90% of the time. If I had to bet, I’d say that asking the lower court (in this case, the Tax Court) to essentially reverse itself (that is, reconsider its decision) is even less frequently availing. There are really three grounds for the Tax Court to reconsider its decision: (1) manifest error of law or facts, (2) intervening change in controlling law, or (3) newly discovered evidence.
Although petitioners may be hesitant to phrase it as such, many appear to make their motions based on the theory that the court manifestly erred on the law or facts. I imagine petitioners don’t exactly emphasize that point because the accusation of being manifestly wrong about a core component of your job as a judge (determining facts and applying the law) is perhaps not the easiest foot to start a motion on.
Perhaps that is why petitioners in Hurford Investments try to flavor their motion to reconsider as a “change in the prevailing law.” And not completely without reason. The Hurford case is all about trying to get attorney’s fees after making a qualified offer under IRC 7430(g). The Tax Court held (as one of two grounds for denying the fees) that because the suit was a TEFRA proceeding the qualified offer rule doesn’t apply.
But wait! Haven’t we seen a qualified offer result in attorney’s fees with a TEFRA proceeding before? Why yes we have, in a post about BASR here.
BASR is the reason why this motion comes before Judge Holmes: the original denial took place before BASR was affirmed in an appellate court. The only problem is that BASR took place in the Federal Court of Claims -and as Judge Holmes drops in the first footnote, no Tax Court case can ever be appealed to the Federal Court of Claims, so it can never control the Tax Court under the Golsen rule. Since the BASR decision isn’t, to Judge Holmes’s mind, a change in the prevailing law, the only way Hurford can succeed is if Judge Holmes committed a manifest error of law or fact. Perhaps not surprisingly (though you can read the order if you’d like more details as to why) Judge Holmes finds that no such error was committed. In fact, Judge Holmes need not even address the conflicting BASR rationale (though he does anyway, explaining why he continues to disagree with the Federal Circuit Court) because regardless of whether qualified offers apply to TEFRA proceedings as a rule, the qualified offer in this instance would fail.
And the reason for that ultimately comes down to the terms of the qualified offer that Hurford made. Under the Treasury Regulations, a qualified offer must (a) fully resolve the taxpayer’s liability for the adjustments at issue, and (b) must only pertain to those adjustments. See Treas. Reg. 301.7430-7(c)(3). In the Hurford offer there were (apparently) other items beyond what was contained in the FPAA that the petitioners sought to address. That, by itself, ruins it as a “qualified” offer. It is at that point your run-of-the-mill settlement offer.
So while it was a valiant effort by the taxpayers in Hurford to attempt to get the Tax Court to change its mind, it ultimately went the way of so many other motions to reconsider: denial. Though the petitioner tried for the “change in prevailing law” flavor, Judge Holmes said it tasted more like “manifest error in law or fact.” It wasn’t the only designated order of Judge Holmes that week to make such a denial, and on essentially the same grounds (see Mancini v. C.I.R., Dkt. # 16975-13, order here.)
But what of the third flavor, “new evidence?” For that, unfortunately, no designated orders came out the week of September 9, 2019 that would directly touch on it, though one came close enough.
The Third Flavor of a (Kind-Of) Motion to Reconsider: Ansley v. C.I.R., Dkt. # 388-18L (order here)
The motion put forward by the pro se petitioner in this case was apparently done in a letter, and not correctly characterized when filed. As the Tax Court is wont to do when unrepresented parties want to ask something of the Court, but aren’t sure the proper Court jargon, Judge Urda determines that the letter should be treated as a “motion to vacate or revise” pursuant to Rule 162 -which is quite similar to a motion to reconsider under Rule 161. The general reasons for granting such a motion look familiar, though are perhaps a bit broader than the motion to reconsider: mistake, newly discovered evidence, fraud, or “other reasons justifying relief.” (Judge Urda cites to, among other sources, Taylor v. C.I.R., T.C. Memo. 2017-212 for these standards.)
The petitioner in Ansley isn’t quite saying that there is newly discovered evidence, but really that the evidence in the record has changed -that is, that the petitioner’s financial circumstances that led to the IRS upholding a levy determination are now significantly different than they were when the decision was reached. Generally, that is a fair ground for remand to Appeals (when the case is still on-going) as it dovetails with IRC 6330(d)(3). However, in this case Judge Urda sees no reason to vacate the decision because (1) the petitioner doesn’t actually provide sufficient information to show a material change in his circumstances, and (2) he doesn’t really need the Court for the relief he’s after: IRS Appeals has retained jurisdiction, so he can still go to them with an Offer, or whatever other collection alternative he hopes to propose.
I’ll admit that as someone that deals with a fair amount of Collection Due Process cases, the fact that IRS Appeals has “ongoing jurisdiction” (Judge Urda’s words) under section 6330(d)(3) after the hearing (more importantly, after an adverse Tax Court decision) isn’t of that much comfort to me. But since I have never had a Tax Court decision uphold a levy determination, I accepted that I may just be out-of-practice with the benefits of Appeals’ retained jurisdiction. So I looked further into exactly what retained jurisdiction would mean for the taxpayer. This led me to more questions than answers.
The IRM on point (220.127.116.11) provides some guidance for when taxpayers may invoke a “retained jurisdiction” hearing. Essentially all of routes require exhausting other routes with the IRS before getting back to Appeals, so it isn’t quite as if the petitioner in Ansley could just return to Appeals with a new Offer (it would be a bit off if you could). In Mr. Ansley’s case, he would have to go through the “CAP” procedure (see Publication 1660) first.
But perhaps worse, even if you have changed circumstances (one of the grounds for retained jurisdiction), the IRM provides that “the ONLY issues considered are those from the original Appeals determination” and that new issues should be sent to CAP. IRM 18.104.22.168(3). To me this means that a taxpayer that originally requested an installment agreement or currently not collectible could not, after things go really badly, now propose an Offer in Compromise in a retained jurisdiction hearing. Maybe that is a moot point, since you can get to Appeals in that case just by filing an Offer in Compromise through the normal channels (and then appealing it, if need be). Which leads to my main question…
Does retained jurisdiction by Appeals really provides any additional protection (or shortcut) to Appeals that the taxpayer wouldn’t otherwise have? To me, it appears that it is only of any use where Appeals makes a determination and then Collection decides to somehow ignore it -in IRM speak, where collection does not “implement Appeals determination” (we’ve previously written on the potential perils of trusting a determination letter to be carried out here). Even then, however, you have to try to work it out with Collection management first. I suppose that’s something… but to me, not a whole lot.
Again, however, I have never directly dealt with a retained jurisdiction hearing, so I may be off. If anyone out there has experience, I appreciate any shared wisdom in the comments.