Judicial Interpretations
Chapter 5
What do We Need to Know About
“Authorities”
> What they are
> Their source
> Where to find them
> How to use them
Federal Court System
The third primary source of tax law
Federal Court System (Cont’d)
Trial Courts
1. U.S. Tax Court
}
2. U.S. District Court}
3. U.S. Court of Federal
Claims
Appellate Courts
U.S. Courts of
Appeals
U.S. Court of Appeals
for the Federal Circuit
Federal Court System (cont’d)
• Final Appeal – all from the appeals courts
U.S. Supreme Court
Judicial Interpretations (cont’d)
• All litigation starts in one of the trial courts
• Each trial court has it’s own unique and
defining attributes and characteristics
– Who decides in which trial court to litigate?
Government or Taxpayer?
Burden of Proof
• What is it?
• Who carries it?
Burden of Proof (cont’d)
• The RRA’98 changed the burden of proof, but w/o
significance. The government carries the burden
if the petitioner (must meet all):
 Has presented credible evidence,
 Maintains records and substantiates items as required,
and
 Cooperates with IRS’ reasonable requests for
interviews, witnesses, info, documentations, etc.
Burden of Proof - §7491
• §7491 Burden shifts where taxpayer produces
credible evidence-•
(1) General rule-•
If, in any court proceeding, a taxpayer
introduces credible evidence with respect to any
factual issue relevant to ascertaining the liability
of the taxpayer for any tax imposed by subtitle A
or B, the Secretary shall have the burden of proof
with respect to such issue.
Burden of Proof - §7491 (cont’d)
• (2) Limitations-•
Paragraph (1) shall apply with respect to an
issue only if-•
(A) the taxpayer has complied with the
requirements under this title to substantiate any
item;
•
(B) the taxpayer has maintained all records
required under this title and has cooperated with
reasonable requests by the Secretary for witnesses,
information, documents, meetings, and interviews;
and ……….
Burden of Proof -§7491 (cont’d)
• c) Penalties-• Notwithstanding any other provision of this
title, the Secretary shall have the burden of
production in any court proceeding with
respect to the liability of any individual for
any penalty, addition to tax, or additional
amount imposed by this title.
Buden of Proof - Tax Court Rule
#142
• (a) – General – (1) The burden of proof
shall be upon the petitioner, except as
otherwise provided or determined by the
court; and except that, in respect of any new
matter, increases in deficiency, and
affirmative defenses, pleaded in the answer,
it shall be upon the respondent. As to
affirmative defenses, see Rule 39.
Burden of Proof - Tax Court Rule
#142 (cont’d)
• (2) See Code Section 7491 where credible
evidence is introduced by the taxpayer, or
any item of income is reconstructed by the
Commissioner based on statistical
information on unrelated taxpayers, or any
penalty, addition to tax, or additional
amount is determined by the Commissioner.
Burden of Proof - Tax Court Rule
#142 (cont’d)
• (b) Fraud: In any case involving the issue
of fraud with intent to evade tax, the burden
of proof in respect to that issue is on the
respondent, and that burden of proof is to be
carried by clear and convincing evidence.
Code Section 7454(a).
Burden of Proof (cont’d)
• What about the District Court and the Court
of Federal Claims?
The general rule of any trial court is that the
Plaintiff / Claimant, etc. (the Taxpayer), must
prove its case against the U.S. [§7422(e)].
§Burden of Proof (cont’d)
• Exceptions:
• §7454(a) Fraud w/intent to evade tax [except the
TP has the burden to prove the portion that is not
fraudulent - §6663(b)]
– But defendant still carries the burden with respect to the
civil matters
• §183(b) Hobby loss – government has burden to
overcome presumption of business purpose –
where a profit is realized 3 out of five consecutive
years
• §534 Accumulated earnings tax
Non-Attorney Confidentiality
Privilege
• Non-attorney Confidentiality Privilege does
not apply to
The preparation of tax returns
The giving of accounting or business advice
Tax accrual workpapers
State tax situations
Written communications between a tax
practitioner and a corporation in connection
with the promotion of any tax shelter.
Common Legal Terms
• Per curiam – a decision of the whole court, rather
than only one judge
• Slip opinion – individual court decision published
separately shortly after it is rendered.
• Declaratory judgment – statutory remedy where
plaintiff in doubt as to legal rights. Binding
adjudication if rights, even if no relief is awarded.
• En banc – more than one judge, or entire court,
may hear a case. Rare – very significant/novel
issue.
Collateral estoppel
• Black’s Law Dictionary: “Collateral estoppel doctrine.
Prior judgment between same parties on different cause of
action is an estoppel as to those matters in issue or points
controverted, on determination of which finding or verdict
was rendered.”
• “When an issue of ultimate fact has been determined by a
valid judgment, that issue cannot be again litigated
between the same parties in future litigation.”
• Simply – you cannot again litigate on the same facts or
issues
– even in another court
Contrast Res Judicata
• Black’s Law Dictionary: “Res judicata. A matter
adjudged; a thing judicially acted upon or decided;
a thing or matter settled by judgment. Rule that a
final judgment rendered by a court of competent
jurisdiction on the merits is conclusive as to the
rights of the parties and their privies, and as to
them, constitutes an absolute bar to a subsequent
action involving the same claim, demand or cause
of action.”
Res judicata distinguished from
Estoppel
• Black’s Law Dictionary: Estoppel is “A
prior judgment between same parties, which
is not strictly res judicata because based
upon different cause of action, operates as
an ‘estoppel’ only as to matters actually in
issue or points controverted”
the point
• Make sure you have identified the
facts/issue correctly and completely,
because you will not have a second chance.
United States Tax Court
U.S. Tax Court
Established by §7441
Nineteen Judges – 19 of them
Judges are specialists
Fifteen year term
Circuit ride
Usually only one judge hears a case. But may
be En Banc, depending on significance/impact
of the issue
U.S. Tax Court
(cont’d)
• The Tax Court has the right to go beyond
the issues brought before it and examine the
petitioner’s entire return if it so desires.
Extremely rare.
U.S. Tax Court
(cont’d)
No jury option
Deficiency only – don’t have to pay first
How to get a case before the Court
“Calendar” process
U.S. Tax Court
(cont’d)
TC decisions
 Regular
 Memorandum – only application (in Judge’s
view) of existing law or interpretation of fact
 May rely on both
U.S. Tax Court
(cont’d)
“The Golsen Rule”
Jack E. Golsen, 54 TC 742 (1970)
U.S. Tax Court
(cont’d)
Does not hear
 Claims for refund (although may find an
overassessment)
 Employment tax – With
certain exceptions
 Excise tax
 Etc., - non-deficiency procedure taxes – With
certain exceptions
New Tax Court Jurisdiction-RRA’98
• Determination of employment status
(Employee v. Independent Contractor)
• §7436
• TC Rule 290
}
}
– After certified or registered notice by IRS
– Timely petition by TP
– Small case division consideration available
New Tax Court Jurisdiction –
RRA’98 (cont’d)
New Tax Court Jurisdiction –
RRA’98 (cont’d)
• Innocent Spouse
– §6015 – Relief from joint and several liability on joint
return
– TC Rule 320
• Liens and Levy’s
– §6320 – Lien actions }
– §6330 – Levy actions }
– TC Rule 330
U.S. Tax Court
(cont’d)
• New/affirmative issues
• Do not ignore dissenting opinions
U.S. Tax Court
(cont’d)
Small Case Division - §7463
Special Trial Judges - §7743A
Not over $50k per year at issue
Petitioner may be pro se or represented
Petitioner’s option
Decision is final – may not be appealed
Decision is not published, not a precedent
Citations
• Whatever the court,
• Whatever the case,
• Be sure to give a complete/accurate
citation for any authority you rely on
• See Appendix B
U.S. Tax Court
(cont’d)
Regular decisions are published by the GPO
Citation:
Fausner, Donald W., 55 TC 620
• 55 = TC Volume #
• 620 = volume page #
• 30,606 = TC decision number
U. S. Tax Court
(cont’d)
• Memorandum decisions cite depends upon the
publisher; published only by the tax services
• CCH:
Fausner, Donald W., 30 T.C.M. 1187 (1971)
–
–
–
–
30 = CCH TCM volume #
T.C.M. = CCH TC memorandum decisions
1187 = page #
(1971) = year of decision
• General (unpublished):
Fausner, T.C. Memo 1971- (#)
United States District
Court
U.S. District Court
• Judges
– Generalists
• One judge
• Jury upon request
– Emotional / equity issues
– Jury can only decide facts. Judge deals with
legal matters.
U.S. District Court
(cont’d)
• How to get a case in U.S. District Court
– Must have paid the tax, filed claim for refund
•
•
•
•
•
Tax paid with return
Tax paid subsequently
Amended return
Per administrative proceeding
Deposit
U.S. District Court
(cont’d)
Bankers & Farmers Life Insurance Company and
Southern Medical Life Insurance Company,
PLAINTIFF v. U.S., DEFENDANT, Civil
Action No. W-76-CA-62, 1979-1 USTC ¶9333
(WD TX, 1979).
(CCH cite)
U.S. District Court
(cont’d)
Bankers & Farmers, supra.:
• “Thus, it appears to the Court that it was the
proper function of the jury in this case to
decide that the §815(d)(1) election was in
fact the result of a good faith reliance by
Bankers & Farmers on a material mistake of
fact.”
U.S. District Court
Bankers (cont’d)
• “It is also clear that the withdrawal of the
election in this case leads to the more
equitable result.” (emphasis added)
U.S. District Court
(cont’d)
Bankers & Farmers Life Insurance Company, 79-1
USTC ¶9333 (CA-5, 1979).
• “…… Bankers & Farmers contends the tax
applied here is imposed on a taxpayer who
incurred net losses rather than income during the
period in question.
• “…… argument cannot withstand careful scrutiny.
An unapportioned tax on the net income of
insurance companies is clearly within Congress’…
taxing power.”
U.S. District Court
(cont’d)
Citation
CCH:
> Bankers & Farmers Life Insurance Company
and Southern Medical Life Insurance Company v.
U.S.A, (DC-Tex) 79-1 USTC ¶9333
> 79-1 = volume #
> USTC = CCH’s United States Tax Cases
> ¶9333 = Paragraph #
U.S. District Court
(cont’d)
• Reliability?
– Varies
– Good chance of overturn on appeal
U.S. Court of Federal Claims
National jurisdiction
Sixteen judges
Judges may travel to your location
All monetary claims against the U.S.
Judges are generalists
No jury option
Again, as the name implies, tax must have
first been paid
United States Court
Of
Federal Claims
U.S. Court of Federal Claims
(cont’d)
• Citation - West:
• 30 Fed. C1. 396 (1994).
– 30 = volume #
– Fed. C1. = West’s U.S. Court of Federal
Claims
– 396 = page #
– 1994 = decision year
U.S. Court of Federal Claims
(cont’d)
• CCH cite
– 94-1 USTC ¶50,044 (Fed. C1., 1994)
United States Courts
of
Appeals
U.S. Courts of Appeals
•
•
•
•
Eleven geographic circuits
One D.C. – D.C. District Court
One Federal – U.S. Court of Federal Claims
Thirteen Total
– Under which jurisdiction are you?
U.S. Courts of Appeals
(cont’d)
• First level of judicial appeal
• Judges typically a panel of three
• Each Circuit CA is independent of all
others. Obligated to follow only decisions
of the U.S. Supreme Court.
U.S. Court of Appeals
(cont’d)
Generally will hear only questions of law.
Usually will not disturb the trial court’s
findings of fact.
Why? The trial court, having heard witnesses
first hand, etc., is in the best position to
determine the facts.
Will overturn a fact determination only if
the trial court was clearly in error.
U.S. Courts of Appeals
(cont’d)
Usually the final authority in tax matters.
Why? The Supreme Court usually will hear
only three or four tax cases per year.
As a researcher, would generally have to
rely on a decision of a CA of jurisdiction.
U.S. Courts of Appeal
(cont’d)
• Citation - CCH:
• Bankers & Farmers Life Insurance
Company v. U.S., (CA-5, rev’g DC) 1981-1
USTC ¶9369
– 81-1 = CCH Volume
– #9369 = page #
U.S. Courts of Appeal
Citations (cont’d)
• Citation - West:
• 643 F.2d 234
– 643 = volume #
– F.2d = West’s Federal Reporter, second series
– 234 = page #
United States Supreme
Court
U.S. Supreme Court
• No automatic right of appeal to the Supreme
Court
• Petition by Writ of Certiorari – certiorari
will be “granted” or “denied.”
U.S. Supreme Court
• Certiorari granted in very few tax cases;
only when
– Significant and widespread issue, and
– Split among the Circuits.
U.S. Supreme Court
(cont’d)
Denial of certiorari
• Is not an “upholding” or approval of the
lower court decision, (and cannot be relied
upon as such) although the lower court’s
decision will stand.
U.S. Supreme Court
(cont’d)
• Citations - Corn Products Refining Co.
• West: 76 SCt 20 (aff’g CA-2)
• Cumulative Bulletins: SCt (aff’g CA-2)
1955-2 CB 51
• CCH: (aff’g CA-2), 55-2 USTC ¶9746
(USSC, 1955)
• GPO Reporter: (aff’g CA-2), 350 US 46
Questions
?