Tax Notes logo

When is the Statutory Notice of Deficiency Issued by an Authorized Delegate of the Treasury Secretary

Posted on Mar. 31, 2016

Earlier this month, the 8th Circuit, in the case of Leroy Muncy v. Commissioner, vacated the memorandum and order entered in the case by the Tax Court and remanded the case to the Tax Court with instructions to get proof to support the opinion that it issued.  What is somewhat remarkable about the remand is that it appears Mr. Muncy made tax protestor type arguments yet convinced the 8th Circuit to issue the remand.  The reason for the remand was basically lack of proof which I suspect resulted from the presumption that the type of proof now being required by the 8th Circuit was unnecessary.  This type of situation is much more likely to occur in a tax protestor type case where the taxpayer is challenging a basic premise that the IRS and the Tax Court see as a given.  Because cases of this type do not arise with frequency, the reminder that having a simple case remanded for lack of proof will impact the way the IRS and the Tax Court approach the next case in which a tax protestor challenges something basic in the tax process.

The taxpayer received a notice of deficiency signed by Judith Miller, IRS Technical Services Manager, on Treasury Department letterhead.  I suspect that to the IRS and to the Tax Court the notice looked very ordinary.  To Mr. Muncy it did not, and he challenged whether Ms. Miller was duly authorized to sign the notice.  The Tax Court made relatively quick work of his argument.  It no doubt did so because it was comfortable that Ms. Miller was an authorized Treasury official.  Chief Counsel’s office apparently offered little proof of who Ms. Miller was or more precisely how the delegation order from the Secretary of Treasury worked its way down through the Commissioner to the IRS Technical Services Manager.  The lack of proof presented to the Tax Court documenting the chain of authority from the Secretary of Treasury, who is authorized under the statute to send out notices of deficiency, to Judith Miller left the 8th Circuit unsatisfied that the Tax Court had a basis to rule against Mr. Muncy.  In the per curiam opinion the Court ended with “Accordingly, we vacate the December 2014 memorandum and order, and remand this case to the tax court with instructions to determine whether Miller had authority to issue the NOD that is the subject of this case, and for further proceedings consistent with that determination. Cf. Schweiss v. Chrysler Motors Corp., 922 F.2d 473 (8th Cir. 1990) (noting benefit of having trial court address disputed factual issues in first instance).”

I expect the case to go back to the Tax Court where the Chief Counsel attorney will place into the record of the Tax Court the delegations of authority linking the Secretary to IRS Technical Services Managers.  The nswer appears clear.  The IRM, in Delegation Order 4-8, provides precisely who has the authority to issue and rescind notices of deficiency. Delegation Order 4-8 lists many Service employees, including a number of positions in Technical Services.

Is this a waste of time?  Most likely.  Was the Eighth Circuit wrong?  Probably not.  This is why going to trial is time consuming and tedious.  Things must be proven that almost everyone has confidence exist.  The IRS does not need to prove the sky is blue or other matters on which the Tax Court can take judicial notice, but it must prove something like a delegation order chain of authority even when doing so is something that the Tax Court knows is a waste of time.  I have not looked at the record to see exactly what was entered.  Maybe Chief Counsel’s office already provided the necessary information and it simply did not make it into the opinion.  I view the 8th Circuit’s opinion as one saying to the Tax Court you cannot ignore the need for proof of the delegation of authority, or a citation to it, even on a routine matter such as the the chain of authority to issue this notice.  You must have something in the record or the opinion to support your conclusion even if you are confident that the litigant is simply raising this argument to frustrate the IRS and the Court.

The case serves as a good reminder to the parties of the proof they need to present to aid the Court in what seems like a slam dunk decision.  I suspect that the case will move swiftly through the Tax Court during the remand stage and eventually get back to the 8th Circuit because Mr. Muncy will not be satisfied with the Tax Court decision in round two.

Subject Areas / Tax Topics
Copy RID