Top of the Order is a round-up of the Tax Court’s “designated orders” from the prior week. This feature is based on the premise that if a Tax Court Judge thinks something is important, you should probably pay attention to it. We generally won’t try to play the role of pop-psychologist in determining why the particular judge may have thought the order was important enough to “designate” it, but we will give a synopsis of the points and lessons that stood out to us. For those looking to gaze deeper into the crystal ball, links to each order is provided.
This post begins a new feature which will be written in rotation by four relatively new attorneys working in the low income taxpayer area: Samatha Galvin of Denver University Law School; Caleb Smith; William Schmidt of Kansas Legal Services; and Patrick Thomas of Notre Dame Law School. Today’s post is written by Caleb Smith. Caleb is currently the clinic fellow in the Federal Tax Clinic at the Legal Services Center of Harvard Law School. He will soon be leaving Harvard to become the director of the tax clinic at the University of Minnesota. Caleb has written guest posts before and we welcome him back to kick off this new feature of PT. We invite reader feedback on this feature and other possible features for the site. Keith
Designated Orders: 4/24/2017 – 4/28/2017
S-Case Bumped Up to the Big Leagues: Precedential Decision Forthcoming
Docket # 015944-16, Skaggs v. C.I.R. (Order Here)
The decision to try a case as an “S” (or “Small”) case is sometimes a tactical choice. The relaxed evidentiary rules of an S-case mean that a client with a good story may find fewer hurdles or restrictions in presenting that story. See bottom paragraphs of Procedurally Taxing Post (Here). Also, because an S-Case cannot be appealed there may be a tactical opportunity for a quick win if the Tax Court has previously ruled on the issue but the circuit court that would have jurisdiction on appeal has not. Usually (at least in my experience) the taxpayer doesn’t much care that the S designation also means the decision cannot serve as precedent.
Judges, however, do care about precedent. Thus we have the designated order from Judge Buch removing the S-designation because the case “presents an issue of first impression.” You’ll have to hold your breath on what that novel issue is. (Actually, you don’t. If you’re short of breath you can read the decision here. Spoiler: it involves what qualifies as “income received while an inmate” for purposes of the Earned Income Credit). But the designated order on its own is worth a review for those that routinely work with cases that qualify for S-treatment (Rules found here).
A couple take-away points:
(1) You can request the S-designation be removed (or changed from regular to S) really late in the process. In fact, the rules say that the request can be made “at any time after the petition is filed and before the trial commences.” This doesn’t mean, however, that the motion will be granted that late in the game. (Keith has a story of making the request to the judge when the case was called for trial and the judge asked if there were any preliminary matters on a case he picked up earlier in the day at calendar call. He sought to change the case to S status on the basis that it was prior to trial. As may be expected, the motion was not granted.) Which leads to the second point:
(2) The IRS may oppose the S-designation, and the taxpayer may need to show why it should be a small case. Anecdotally, I have witnessed IRS recalcitrance on S-case designation at least once in the past where it was not entirely clear to me why they cared. The order provides a helpful review of what factors are in play when weighing the decision to remove an S-case designation by citing to the 1978 Congressional Conference report on point. Addressing these factors should help a taxpayer respond to a motion either in favor of S-case designation or removal of it.
Lawyer Behaving Badly
Docket # 005880-16 L, Baity v. C.I.R. (Order Here)
For those of you that routinely monitor designated orders, this one may seem like deja-vu. And that’s because it basically is. This is merely the latest in a line of designated orders pertaining to one lawyer trying seven different cases, all of which will be lost at the summary judgment stage.
In fact, the taxpayers already HAVE lost, but the Court is simply holding back from entering the decision so that the cases remain on calendar. Why? Solely so that the lawyer can show up and explain why there should not be sanctions and a referral to the ethics committee. Ouch.
At absolute best, it appears that the lawyer has been completely invisible as an advocate in the case, failing to respond to the IRS motion for summary judgment and Tax Court order that he so respond. The court cannot determine if counsel is “unaware of or is ignoring the Court’s orders.” At worst, the Court suggests that the lawyer may have knowingly brought merit-less claims using CDP judicial review inappropriately to evade collection, giving rise to sanctions under IRC § 6673.
A couple of observations:
- Attorneys, remember FRCP Rule 11 when deciding to take a case and prepare a petition… And relatedly:
- Attorneys: remember the difficulties of getting out of a case when you’ve entered an appearance. When you don’t yet have all the facts and a petition deadline is looming, the better option can be limited representation through Form 2848, written about here. But, no matter what you do, at the very least RESPOND to the Tax Court (and show up).
When the Court Bolds Instructions, You Should Probably Pay Attention to Them
Docket # 021815-15, Kanofsky v. C.I.R. (Order Here)
An uncharitable recap of this order would be as follows: Court orders a pro se petitioner to respond to the IRS’s motion for summary judgment. Pro se petitioner responds, but did not follow the instructions of the Court’s order close enough. Court grants motion for summary judgment.
Not quite. In fact, there appears to be quite a lot of hand-holding from the Court leading up to this outcome. First, the Court denies the IRS motion for summary judgment because the motion would not be easy for the petitioner to respond to. (More on that below). Then, when the IRS makes a second, clearer motion, the Court specifically bolds what and how it wants the petitioner to respond. The Court even includes a Q&A printout on what a motion for summary judgment is and how to respond to it. The taxpayer appears to be familiar with (or at least make frequent use of) the court. (An earlier order from the court shows that the IRS has had previous run-ins with the taxpayer, and the taxpayer also appears to refer to himself as an accomplished whistleblower.) All things considered, this appears to be an instance of the Court doing what it can to help a pro se taxpayer help themselves.
If anything a take away from this case is a parable on “the value of specificity.” Number and separate your assertions so that the Court (and the opposing party) can respond to the discrete issues.
The first substantive order of the court was a denial of the IRS motion for summary judgment, without even directing the petitioner to respond. Why? Because the IRS motion was sloppily drafted: misusing terms of art, and bringing up facts that were irrelevant to the issues at hand. All the Court wants is a motion for summary judgment with assertions that can be responded to, by number, with reason and evidence for the disagreement. The original IRS motion for summary judgment is not congenial to such a response, so the Court (looking out for the pro se petitioner), says “try again.”
When the IRS did try again (this time adequately), the table was set. If the petitioner couldn’t comply with the order to respond with specificity, summary judgment would be warranted. And thus you have the designated order above.
Reminder: Timely CDP Requests Yield Notice of Determination, Not Decision Letter
Docket # 026578-16 L, Allen v. C.I.R. (Order Here)
This designated order from Special Trial Judge Armen looks at the jurisdiction of the Tax Court to review a CDP hearing that was timely requested with Appeals, but (for unknown reasons) a decision letter rather than a notice of determination was issued. A decision letter is typically what the IRS issues when the taxpayer has an “Equivalent” hearing rather than a full-fledged CDP hearing. (More on equivalent hearings can be found here.) Unlike CDP hearings, equivalent hearings cannot be reviewed by the Tax Court (thus the jurisdictional argument).
It is unclear from the available documents both why IRS counsel believes the Tax Court doesn’t have jurisdiction and why IRS Appeals issued a decision letter in the first place. If IRS counsel’s argument is that a (form-over-substance) “notice of determination” letter is required Special Judge Armen disposes of that with a reference to Craig v. Commissioner, standing for the proposition that a decision letter will be treated as a notice of determination if it was from a CDP hearing (and not an “equivalent” hearing).
Some thoughts and crystal ball gazing: This request was sent right at the buzzer, but ultimately was timely mailed (and received). What would the IRS have to do to show that the taxpayer WANTED an equivalent hearing even though the request would qualify for a full CDP?
As mentioned above, it is not immediately clear why the IRS thinks the Tax Court lacks jurisdiction. This may be a case where the IRS has created more work for itself by trying to dispose of something quickly, rather than correctly. The taxpayer is pro se and appears to want to argue tax years other than the one for which the proposed levy relates. The court quickly disposes of its jurisdiction to hear any of those other years. The taxpayer also appears to have checked pretty much every conceivable box for the court’s jurisdiction when filing her amended petition (e.g. Notice of Deficiency, Notice of Determination Concerning Collection Action, Notice of Determination Concerning Your Request for Relief From Joint and Several Liability, and Notice of Final Determination Not To Abate Interest (see order here)). It wouldn’t surprise me to see the Form 12153 CDP Request falling into a similar pattern…