The Tax CourT: a View From The BenCh

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n s t i t u t e
I
N Y C L A - C L E
T he T ax C ourt : A
V iew F rom the B ench
Prepared in connection with a Continuing Legal Education course presented
at New York County Lawyers’ Association, 14 Vesey Street, New York, NY
presented on Monday, September 23, 2013.
S p ecial G u e s t S p ea k e r :
Hon. John O. Colvin, Chief Judge, U.S. Tax Court; Monica Koch, IRS Counsel
M o d e r at o r :
Frank Agostino, Agostino & Associates, PC
2 TRANSITIONAL & NON-TRANSITIONAL MCLE CREDITS:
This course has been approved in accordance with the requirements of the New York State Continuing Legal Education
Board for a maximum of 2 Transitional & Non-Transitional credit hours: 1 Ethics; 1 Skills
This program has been approved by the Board of Continuing Legal Education of the Supreme Court of New Jersey for 2
hours of total CLE credit. Of these, 1 qualify as hours of credit for Ethics/Professionalism, and 0 qualify as hours of credit
toward certification in civil trial law, criminal trial law, workers compensation law and/or matrimonial law.
Information Regarding CLE Credits and Certification
The Tax Court: A View from the Bench
September 23, 2013; 6:00 PM to 8:00 PM
The New York State CLE Board Regulations require all accredited CLE
providers to provide documentation that CLE course attendees are, in fact,
present during the course. Please review the following NYCLA rules for
MCLE credit allocation and certificate distribution.
i.
You must sign-in and note the time of arrival to receive your
course materials and receive MCLE credit. The time will be
verified by the Program Assistant.
ii.
You will receive your MCLE certificate as you exit the room at
the end of the course. The certificates will bear your name and
will be arranged in alphabetical order on the tables directly outside
the auditorium.
iii.
If you arrive after the course has begun, you must sign-in and note
the time of your arrival. The time will be verified by the Program
Assistant. If it has been determined that you will still receive
educational value by attending a portion of the program, you will
receive a pro-rated CLE certificate.
iv.
Please note: We can only certify MCLE credit for the actual time
you are in attendance. If you leave before the end of the course,
you must sign-out and enter the time you are leaving. The time will
be verified by the Program Assistant. Again, if it has been
determined that you received educational value from attending a
portion of the program, your CLE credits will be pro-rated and the
certificate will be mailed to you within one week.
v.
If you leave early and do not sign out, we will assume that you left
at the midpoint of the course. If it has been determined that you
received educational value from the portion of the program you
attended, we will pro-rate the credits accordingly, unless you can
provide verification of course completion. Your certificate will
be mailed to you within one week.
Thank you for choosing NYCLA as your CLE provider!
New York County Lawyers’ Association
Continuing Legal Education Institute
14 Vesey Street, New York, N.Y. 10007 • (212) 267-6646
The Tax Court: A View from the Bench
September 23, 2013 6:00 PM-8:00 PM
AGENDA
Moderator:
Frank Agostino, Agostino & Associates PC
Faculty:
Hon. John O. Colvin, Chief Judge, U.S. Tax Court
Monica Koch, IRS Counsel
5:30 PM – 6:00 PM
Registration
6:00 PM – 8:00 PM
Introductions and Discussion
**** Reception to follow immediately after the program
A View From the Bench
The Trial of the Tax Court Case and
Ethical Considerations
September 23, 2013
1
Tax Court Jurisdiction
2
Common Notices Which Are Predicates
to US Tax Court Jurisdiction
• Notice of deficiency - Before the IRS can assess and collect
certain types of taxes (e.g., income tax, estate and gift tax), a
notice of deficiency must be issued to the taxpayer or a notice of
liability to a transferee.
– If a notice of deficiency is issued, the recipients have the right,
within specified time limits, to litigate the correctness of the
deficiency, or the extent of transferee liability in the Tax Court
without first paying the tax. IRC §6213(a)
• Notice of Determination - The Tax Court has jurisdiction under
IRC §6330(d)(1) with respect to a timely filed petition disputing a
valid notice of determination issued by an Appeals officer. See
Lunsford v. CIR, 117 T.C. 159 (2001)
• Final Notice of Determination with Respect to IRC § 6015 relief.
IRC §6015
3
U.S. Tax Court Petition
4
Petition
• Filing Fee
– The Tax Court recently simplified the
Application for Waiving of Filing Fee so
that it is easier to fill out.
• General
– Deficiency or Liability Action
• Should conform to Form 1 shown in Appendix I
of the Tax Court Rules, and
• Shall comply with the requirements of the Rules
relating to Pleadings.
5
Content of Petition in Deficiency
or Liability Action
• Individual
–
–
–
–
Petitioner’s name.
State of legal residence.
Mailing address.
The office of the IRS with which the tax return for
the period in controversy was filed.
– The date of the Notice of Deficiency or liability, or
other proper allegations showing jurisdiction of the
Court, and the City and State of the Office of the
IRS which issued the Notice.
– The amount of the deficiency or liability.
6
Content of Petition in Deficiency
or Liability Action, cont.
• The nature of the tax.
• The year or years for which the determination was made.
• Clear and concise assignments of each and every error which
the petitioner alleges to have been committed by the
Commissioner in the determination of the deficiency or liability.
• Any issued not raised in the assignment of error shall be
deemed to be conceded.
• Clear and concise statements of the facts on which the
petitioner bases the assignment of error, except for issues to
which the burden of proof is on the Commissioner.
• A prayer setting forth the relief sought by the petitioner.
• The signature, mailing address, and telephone number of each
petitioner or petitioner’s counsel as well as counsel’s Tax Court
bar number.
• A copy of the Notice of deficiency or liability.
7
Rule 33(a) and Rule 23(g)
• Rule 33(a) was amended July 6, 2012 to state that
Each pleading shall be signed in the manner
provided in Rule 23. Where there is more than one
attorney of record, the signature of only one is
required. Except when otherwise specifically directed
by the Court, pleadings need not be verified or
accompanied by affidavit or declaration.
• Rule 23(g): Effective as of July 6, 2012. Prohibits the
Clerk from refusing to file a paper because it is not in
the form prescribed by the Rules.
8
Answer
• The Commissioner shall have 60 days from the date
of service of the date of service of the petition within
which to file an answer, or 45 days from that date
within which to move with respect to the petition.
• Form and Content
– The answer should be drawn so that it will advise the
petitioner and the Court fully of the nature of the defense.
• Effect: every material allegation set out in the petition
and not expressly admitted or denied in the answer
shall be deemed to be admitted.
9
Reply
• Time to Reply or Move
– Petitioner shall have 45 days from the date
of service of the answer within which to file
a reply, or 30 days from that date within
which to move with respect to the answer.
10
Reply, cont.
• Form and Content:
– In response to each material allegation in the
answer and the facts in support thereof on which
the Commissioner has the burden of proof, the
reply shall contain a specific admission or denial.
• If the petitioner is without knowledge or information
sufficient to form a belief as to the truth of the allegation,
the petitioner shall so state.
• New Material:
– Any new material contained in the reply shall be
deemed to be denied.
11
Timely Petition Required
• In all cases, the jurisdiction of the Court also depends
on the timely filing of a petition.
– Contempt of Court: may be punished by fine or
imprisonment within the scope of IRC § 7456(c).
• Misbehavior of any person in its presence or so near thereto as
to obstruct the administration of justice
• Misbehavior of any of its officers in their official transactions; or
• Disobedience or resistance to its lawful writ, process, order,
rule, decree, or command.
– Bankruptcy and Receivership
• For bankruptcy, see 11 U.S.C. 362(a)(8) and IRC 6213(f)(1).
• For receivership, see IRC §6871(c)(2).
12
Pleadings
•
Initial Pleadings
– Petition (90 days). Rule 20.
– Answer (60 days). Rule 36.
– Reply (45 days). Rule 37.
•
General rules
– Purpose of pleadings is to give the parties and the Court fair notice of the
matters in controversy and the basis for their respective positions.
– Each averment to a pleading shall be simple, concise, and direct.
• There are no technical forms of pleading
– Consistency:
• A party may set forth two or more statements of a claim or defense alternatively or
hypothetically.
• If two or more statements are made in the alternative and one of them would be
sufficient if made independently, the pleading is not made insufficient by the
insufficiency of one or more of the alternative claims. Rule 31(c).
– All pleadings shall be so construed as to do substantial justice.
13
Pleadings: Form – Rule 32
• Caption; Names of parties: every pleading must contain a
caption setting forth:
–
–
–
–
The name of the Court
The title of the case
The docket number, and
A designation to show the nature of the pleading.
• Separate statement: all averments of claim or defense, and
supporting statements, shall be made in separately designated
paragraphs.
– Each paragraph should be limited to a single item or single set of
circumstances.
• Adoption by reference: statements may be adopted by reference
in a different part of the same pleading or in another pleading or
in any motion.
14
Signing of Pleadings
• The signature of counsel or a party constitutes a
certificate by the signer that the signer has:
– read the pleading, and
– that, to the best of the signer’s knowledge, information, and
belief formed after reasonable inquiry, it is well grounded in
fact and is warranted by existing law, or a good faith
argument for an extension, modification, or reversal of
existing law; and that it is not interposed for any improper
purpose, such as to harass or to cause unnecessary delay
or needless increase in the cost of litigation.
• The signature of counsel constitutes a representation
by counsel that counsel is authorized to represent the
party on whose behalf the pleading is filed.
15
Standing Pretrial Order
• Issued with notice of trial at the direction
of the trial judge to facilitate the orderly
and efficient disposition of all cases on
the trial calendar.
• Failure to comply with the standing
pretrial order may subject a party or
counsel to sanctions. Rule 131.
16
Pre-Trial Motions
17
Motion for Judgment on the
Pleadings - TC Rule 120
• Motion for summary judgment
– Matters outside the pleading are presented to the
Court with supporting affidavits.
– Summary judgment may be requested upon all or
any part of the legal issues in controversy.
• If faced with a motion for summary judgment,
practitioners should be prepared to argue that a genuine
issue of material facts does exists necessitating trial
– Decision will be rendered as a matter of law if
there is no genuine issue as to any material fact Tax Court Rule 121.
18
Motion for Judgment on the
Pleadings - TC Rule 120, cont.
• Motion to Submit Case Without Trial
– Party may move to submit case without trial if the
submission of evidence is not needed because
sufficient facts have been admitted, stipulated,
established by deposition, or included in the
record in some other way - Tax Court Rule 122.
• Motion in Limine
– Motion to exclude certain evidence or expert
report on grounds that it is privileged, its relevance
is outweighed by risk of prejudice or confusion, or
it is cumulative.
19
Pre-Trial Activities
20
Duty to Disclose/Informal
Discovery
• The Court expects the parties to attempt to attain the
objective of discovery through informal consultation
or communication before using the Tax Court
discovery rules. See Branerton v. Commissioner, 61
T.C. 6911 692 (1974).
• The standing pretrial order typically requires the
parties to exchange all documents and other
evidence that they intend to use at trial (except for
impeachment purposes) at least 14 days before trial.
– The Court may exclude documents not exchanged in
accordance with standing pretrial order unless good cause is
shown.
21
Formal Discovery
• Interrogatories - Tax Ct. R. 71
– Unless otherwise stipulated or ordered by the Court, a party
may serve upon any other party no more than 25 written
interrogatories, including all discrete subparts but excluding
interrogatories described in paragraph (d) of this Rule, to be
answered by the party served or, if the party served is a
public or private corporation or a partnership or association
or governmental agency, by an officer or agent who shall
furnish such information as is available to the party. A motion
for leave to serve additional interrogatories may be granted
by the Court to the extent consistent with Rule 70(c)(1).
• Requests for Production of Documents or Things.
Tax Ct. R. 72.
22
Tax Ct. R. 70 Recent Amendments
•
Tax Ct. R. 70(a)(2)
– Discovery shall not be commenced, without leave of Court, before the
expiration of 30 days after joinder of issue (see Rule 38). Discovery shall be
completed and any motion to compel or any other motion with respect to
such discovery shall be filed, unless otherwise authorized by the Court, no
later than 45 days prior to the date set for call of the case from a trial
calendar. Discovery by a deposition under Rule 74(c) may not be
commenced before a notice of trial has been issued or the case has been
assigned to a Judge or Special Trial Judge and any motion to compel or any
other motion with respect to such discovery shall be filed within the time
provided by the preceding sentence. Discovery of matters which are
relevant only to the issue of a party's entitlement to reasonable litigation or
administrative costs shall not be commenced, without leave of Court, before
a motion for reasonable litigation or administrative costs has been noticed
for a hearing, and discovery shall be completed and any motion to compel
or any other motion with respect to such discovery shall be filed, unless
otherwise authorized by the Court, no later than 45 days prior to the date
set for hearing.
23
Tax Ct. R. 70 Recent Amendments
• Tax Ct. R. 70(b):
– The information or response sought through discovery may
concern any matter not privileged and which is relevant to
the subject matter involved in the pending case. It is not
ground for objection that the information or response sought
will be inadmissible at the trial, if that information or
response appears reasonably calculated to lead to discovery
of admissible evidence, regardless of the burden of proof
involved. If the information or response sought is otherwise
proper, it is not objectionable merely because the
information or response involves an opinion or contention
that relates to fact or to the application of law to fact. But the
Court may order that the information or response sought
need not be furnished or made until some designated time or
a particular stage has been reached in the case or until a
specified step has been taken by a party.
24
Tax Ct. R. 70 Recent Amendments
• Tax Ct. R. 70(c):
– The frequency or extent of use of the discovery methods set
forth in paragraph (a) shall be limited by the Court if it
determines that: (A) The discovery sought is unreasonably
cumulative or duplicative, or is obtainable from some other
source that is more convenient, less burdensome, or less
expensive; (B) the party seeking discovery has had ample
opportunity by discovery in the action to obtain the
information sought; or (C) the discovery is unduly
burdensome or expensive, taking into account the needs of
the case, the amount in controversy, limitations on the
parties' resources, and the importance of the issues at stake
in the litigation. The Court may act upon its own initiative
after reasonable notice or pursuant to a motion under Rule
103.
25
Formal Discovery
• Requests for Admissions. Tax Ct. R. 90.
• Witness Interviews
• Depositions
– Allowed with consent of the parties
– Expert witness on its own motion
26
Stipulations
27
Rule 91
• Required:
– Parties are required to stipulate, to the fullest
extent to which complete or qualified agreement
can or fairly should be reached, 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.
• Comprehensive:
– the fact that any matter may have been obtained
through discovery or requests for admission is not
grounds for omitting such matter from the
stipulation.
28
Rule 91, cont.
• Form:
– In writing
– Signed by the parties thereto or by their counsel.
– Shall observe the requirements of Tax Court Rule
23 as to form and style of papers, except the
stipulation shall be filed in duplicate but only one
set of exhibits shall be filed.
• Filing:
– Shall be filed by the parties at or before the
commencement of trial.
– A stipulation, when filed, does not need to be
offered formally to be considered in evidence.
29
Rule 91, cont.
• Objections
– Any objection to all or part of a stipulation should be noted in
the stipulation.
• Binding Effect
– A stipulation shall be treated as a conclusive admission by
the parties to the stipulation.
• Noncompliance by a party:
– Motion to Compel Stipulation: If, after the date of issuance of
trial notice in a case, a party has refused or failed to confer
with an adversary with respect to entering into a stipulation,
the party proposing stipulation may file a motion to compel
stipulation not less than 45 days prior to the date set for call
of the case from a trial calendar.
30
Branerton Conference
• Bedrock of Tax Court practice. See
Branerton Corp. v. Commissioner, 61
T.C. 691 (1974).
• Discovery and requests for admissions
may not be commenced by a party until
after that party has made a meaningful,
good faith attempt to attain the
objectives of discovery through informal
consultation or communication.
31
Petitioner’s Counsel Room
• What is available in Petitioner’s counsel room
to help draft a stipulation?
• Transcripts
• Practitioners should have access to computer
for internet access and word processing
program.
• www.IRS.gov
• Tax Court website – www.ustaxcourt.gov
32
Trial
33
Tax Court Stuffer Notice
• The Tax Court recently updated its procedures with
respect to low-income taxpayers and access to Low
Income Taxpayer Clinics (“LITC”).
• The Tax Section of the ABA, the Office of Chief
Counsel and the Taxpayer Advocate were all
concerned that low income taxpayers were not given
enough notice of the existence of LITCs.
– Currently the Tax Court sends stuffer notices to selfrepresented taxpayers upon acknowledgment of the filing of
a petition and when the case is calendared for trial.
Beginning October 1, 2013 the Court will start sending
stuffer notices 30 days in advance of trial.
34
Use of Counsel Rooms
• LITCs and Bar sponsored calendar call
programs have use of petitioner’s
counsel room on the morning of the
calendar call.
35
Change of Address
• The Court will send a change of
address form (Form 10) with the
acknowledgment of the petition to
remind petitioners that they need to
notify the Court when they change their
address.
– Tax Ct. R. 21(b)(4) requires petitioners to
inform the Court of a change of address.
36
Call of the Calendar
• Time
– The new 30 day notice of LITCs sent to
self-represented taxpayers encourages the
taxpayer to arrive by 9AM on the date of
the calendar call. The Court is now
requesting practitioners participating in a
calendar call program to arrive at the Court
at least one hour before the beginning of
the calendar call.
37
Call of the Calendar, cont.
• A regular trial session of the Tax Court is ordinarily scheduled
for one to two weeks.
• Trial session commences with call of the calendar.
• When a case is called at the calendar, the taxpayer’s counsel
(or taxpayer if pro se) and respondent’s counsel must be
prepared to inform the judge whether the case has been settled
and, if so, to state for the record the basis of the settlement or to
submit a written stipulation of the settlement.
• If the parties have not reached a basis of settlement, the case
will be set for trial.
• Stipulation of Facts
– Pro se taxpayers routinely do not prepare stipulations of fact.
– Respondent prepares Stipulations of fact for taxpayers to sign.
– Petitioner’s counsel must counsel taxpayers on the need to
stipulate and the binding nature of stipulations .
38
Standards of Review
• Deficiency
– Montgomery v. CIR, 122 T.C. 1 (2004)
• A person who has not received a notice of deficiency and has not had a
prior administrative or judicial opportunity to challenge the amounts
assessed may challenge the liability as part of the collection review
procedure.
• Innocent Spouse relief under IRC § 6015(f)
– De novo. See Porter v. Commissioner, 132 T.C. No. 11.
• Innocent Spouse relief under § 6015(b) and (c):
– De novo. See Porter v. Commissioner, 132 T.C. No. 11.
• When reviewing IRS determination under IRC §§ 6330/6320 CDP
– Abuse of discretion
• Reliance on a failure to pay current taxes in rejecting a collection
alternative does not constitute an abuse of discretion. See Orum v.
Commissioner, 123 T.C. 1 (2004).
39
Burden of Proof: TC Rule 142
• In general the burden of proof is on the petitioner, except as
otherwise provided for by statute or determined by the Court.
• Exceptions:
– New matters
– Increase in deficiency
– Affirmative defenses
• Fraud
– In any case involving fraud with intent to evade tax, the burden of
proof is on the respondent.
– Standard is clear and convincing evidence.
• Transferee liability
– Burden of proof is on the respondent to show that a petitioner is
liable as a transferee of property of a taxpayer, but not to show that
the taxpayer was liable for the tax. See IRC § 6901(a).
40
Burden of Proof: IRC § 7491(a)
•
Taxpayer can shift the burden to respondent if, in any court proceeding,:
–
–
–
–
–
•
•
•
Taxpayer introduces credible evidence with respect to any factual issue relevant to
ascertaining the liability of the taxpayer.
Taxpayer has complied with requirements of the Code to substantiate any item.
Taxpayer has maintained all records required under the code. See Sec. 6001; Sec.
1.6001-1(a), Income Tax Regs. for record keeping requirements.
Taxpayer has cooperated with reasonable requests by the Secretary for witnesses,
information, documents, meetings and interviews, and
In the case of a partnership, corporation, or trust, the taxpayer is described in IRC §
7430(c)(4)(A)(ii).
See Jones, “The Burden of Proof 10 Years After the Shift,” 121 Tax Notes 287
(October 20, 2008) for an analysis leading to the conclusion that in most cases
the shift has had no impact and the decision is ultimately based on the
preponderance of the evidence.
See Knudsen v. Commissioner, T.C. Memo 2007-340 and 131 T.C. 185 (2008)
(supplemental op.).
See Higbee v. Commissioner, 116 T.C. No. 28 (2001).
41
Burden of Proof: IRC § 7491(b)
• Secretary has the burden of proof in any
court proceeding with respect to any
item of income which was reconstructed
by the Secretary solely through the use
of statistical information of unrelated
taxpayers.
42
Burden of Proof: IRC § 7491(c)
Penalties
• Secretary has the burden of production with respect
to liability for penalties, additions to tax, or additional
amounts imposed.
• Higbee v. Commissioner, 116 T.C. No. 28 (2001).:
Commissioner must come forward with sufficient
evidence indicating that it is appropriate to impose
the relevant penalty.
– Once the Commissioner meets his burden of production, the
taxpayer must come forward with evidence sufficient to
persuade a Court that the Commissioner’s determination if
incorrect. See Higbee v. Commissioner, 116 T.C. No. 128
(2001).
43
IRC § 6201(d)
• If an information return serves as the basis for
the determination of a deficiency, IRC §
6201(d) provides that in any court
proceeding, if:
– Taxpayer asserts a reasonable dispute with
respect to income reported on an information
return, and
– Taxpayer has fully cooperated with the
Commissioner,
– Then the Commissioner has the burden of
producing reasonable and probative information in
addition to the information return.
44
Evidence
• Rule 143: Trials before the Court will be
conducted in accordance with the rules
of evidence applicable in trials without a
jury in the U.S. District Court for the
District of Columbia.
45
Evidence: Hearsay
•
•
FRE 802: an out of court statement introduced to prove the truth of that
statement.
Exceptions applicable to certain self-represented taxpayers:
–
FRE 803(6) Business Records
•
•
•
A memorandum, report, record, or data compilation, in any form of acts, events, conditions,
opinions, or diagnoses, made at or near the time by, or from information transmitted by, a
person with knowledge, if kept in the course of a regularly conducted business activity, and if it
was the regular practice of that business to make the record
The records can be introduced with the testimony of the custodian of records or by certification
that complies with FRE 902(11), FRE 902(12), or a statute permitting certification, unless the
source indicates untrustworthiness.
FRE 902(11)
–
•
A party intending to offer into evidence under this rule must provide written notice of that intention to all
adverse parties, and must make the record and declaration available for inspection sufficiently in advance
of their offer into evidence to provide an adverse party the opportunity to challenge them.
Tax returns:
–
A tax return is generally considered inadmissible hearsay with the exception that the
return may constitute an admission by the taxpayer or someone on the taxpayer’s
behalf.
•
Note: if the taxpayer stipulates to the tax return, they have waived any hearsay argument.
46
Opening Statement
• Should start with a theme and end with that
same theme.
• Provide a roadmap for the Court of how and
why the decision should be written in your
favor.
• Personalize your client
– It will be more difficult for the Court to find for the
government if you depict your client in a positive
light.
• Will adverse decision affect third parties?
– Taxpayer’s employees
– Taxpayer’s family
47
Opening Statement, cont.
• Do not abandon an issue.
– After petitioner’s opening statement, respondent
will ask the Court whether petitioner has conceded
any issue not discussed in their opening
statement. IRM 35.6.2.6 (08-11-2004).
– If petitioner raises a new issue without having
amended his pleadings and respondent is
prejudiced by surprise, respondent will argue that
the “new issue” is not before the court.
48
Tax Court Rule 155
• Rule 155 Computations
– If the parties are not in agreement as to the
amount to be included in the decision in
accordance with the findings and conclusions of
the Court, then each party shall file with the Court
a computation of the amount believed by such
party to be in accordance with the Court's findings
and conclusions. In the case of an overpayment,
the computation shall also include the amount and
date of each payment made by the petitioner. A
party shall file such party's computation within 90
days of service of the opinion or order, unless
otherwise directed by the Court.
49
Procedures Involving Taxpayer
Interviews
50
IRC § 7521
• Section 7521(a) Recording of Interview by Taxpayer: any officer
or employee of the IRS shall allow the taxpayer to make an
audio recording:
– Upon advance request
– At taxpayer’s expense
– With taxpayer’s own equipment
• Taxpayers are entitled to record face-to-face CDP hearings. See
Keene v. Commissioner, 121 T.C. at 14.
• “In-person interview” refers to an interview in which the IRS
representative and taxpayer are face-to-face. Taxpayers are not
entitled to record telephone CDP hearings. See Calafati v.
Commissioner, 127 T.C. No. 16.
51
IRC § 7521, cont.
• 7521(b) Safeguards: an officer or employee of the
IRS shall provide to the taxpayer prior to the
interview:
– In the case of an interview relating to the determination of
tax, an explanation of the audit process and the taxpayer’s
rights under such process, or
– In the case of an interview relating to the collection of tax, an
explanation of the collection process and the taxpayer’s
rights under such process.
• Section 7521(a) applies to representatives.
• This section does not apply to criminal investigations.
52
Giamelli v. Commissioner, 129
T.C. 14 (2007)
• Tax Court held that their review is limited to
the determination issued by respondent’s
Appeals Office. Since the only issue raised at
Appeals was an installment agreement,
petitioner cannot then raise a new issue in
Tax Court.
– The original taxpayer died after his CDP hearing.
At Tax Court, his estate attempted to argue that
the estate was a different person and therefore
had not had the opportunity to raise the issue. The
Court disagreed.
53
Chenery Doctrine
• An administrative law principle that says a reviewing
court, in dealing with a determination or judgment
which an administrative agency alone is authorized to
make, must judge the propriety of such action by the
grounds invoked by the agency. SEC v. Chenery
Corp., 332 U.S. 194 (1947).
• Antioco v. Commissioner, T.C. Memo. 2013-35: The
Tax Court determined that the Chenery Doctrine
applied in the CDP context and therefore the Court
cannot uphold a notice of determination on grounds
other than those actually relied upon by the Appeals
Officer.
54
Trial of “S” Cases
55
The Small Tax Case
• Both the Code and the Tax Court rules contain
special provisions applicable to “small tax cases”.
• A small tax case is one in which neither the amount
of the deficiency placed in dispute nor the amount of
any claimed overpayment exceeds $50,000.
– Small case procedures are also available for a petitioner for
innocent spouse relief under IRC § 6015(e) where the
amount of relief sought does not exceed $50,000.
– Small case procedure are available for CDP appeals under
IRC § 6320(c) or IRC § 6330 (d) where the unpaid tax does
not exceed $50,000.
56
Small Case Procedures are
Elective
•
Limitations:
– In small tax cases the Court does not have jurisdiction to enter a decision
finding a deficiency or overpayment greater than the $50,000 jurisdictional
amount.
– Small case decisions are not reviewable by an appellate court and are not
precedent for any other case.
•
•
Election is made on the petition or after the petition but before trial.
Tax Court has the authority to revoke small case election on its own
motion before trial.
– Tax Court rejected small tax case status where the issues were common to
other cases pending before it. Page v. Commissioner, 86 T.C. 1, 12 (1986).
•
Practice Tip: A taxpayer can obtain small tax case status where a
deficiency notice determines a deficiency greater than the statutory
amount by contesting an amount less than the statutory amount, even if
there is only one legal issue underlying the entire determined
deficiency. Kallich v. Commissioner, 89 T.C. 676 (1987), acq., 1989-1
C.B. 1.
57
Rule 177
• Rule 177 provides that trials of small tax
cases will be conducted as informally as
possible, consistent with orderly procedures,
and any evidence deemed by the court to
have probative value will be admissible.
– IRM 35.6.2.12 (08-11-2004) states that where a
pro se petitioner is doing his best to present his
case to the court, technical evidentiary or
procedural objections should not be made.
• Respondent’s counsel should assist the pro se petitioner
to bring out all of the facts, and cross-examination should
be for the purpose of presenting to the court all the
pertinent and competent evidence.
58
Common Issues in “S” Cases:
Collection Due Process
• After a CDP hearing, the Appeals Officer will issue a Notice of
Determination which advises the taxpayer of their right to seek
judicial review within 30 days after the date of the Notice of
Determination.
– The timing of a request for Tax Court Review concerning denials of
relief under IRC § 6015 is 90 days.
– The request for review must be filed within 30 days if relief is
requested for other issues raised in the CDP hearing. Treas. Reg. §
301.6320-1(f)(2), Q&A-F2.
• The Tax Court reviews the Appeals Officer’s determination
under an abuse of discretion standard.
– In its review for abuse of discretion, the Tax Court generally only
considers arguments and issues that were raised at the CDP
hearing or otherwise brought to the attention to the Appeals office.
59
Common Issues in “S” Cases:
Collection Due Process, cont.
• Robinette v. Commissioner, 123 T.C. 85 (2004):
– There is a disagreement between the Tax Court, and the
IRS, Eighth Circuit and other courts concerning the scope of
the record on which such review should be based.
– The Tax Court has held that it may review new evidence in
the course of reviewing whether an appeals officer abused
his discretion, i.e., its review is not limited to evidence
presented during the administrative appeal.
– The Eighth Circuit, in Robinette v. Commissioner, 439 F.3d
445 (8th Cir. 2006), reversed the Tax Court taking the
position that, consistent with general principles of
administrative law and the Administrative Procedures Act,
judicial review of the IRS’s decision should be limited to the
administrative record developed at the hearing before
Appeals.
60
Common Issues in “S” Cases:
Substantiation
• Taxpayer bears the burden of proving the
entitlement to claimed deductions. See Tax
Court Rule 142(a); Welch v. Helvering, 290
U.S. 111 (1933).
• IRC § 6001
– Every taxpayer liable for any tax under the Internal
Revenue Code, or for collection thereof, shall
keep records, render such statements, make such
returns, and comply with such rules and
regulations as the Secretary may from time to time
prescribe.
61
Substantiation: Cohan Rule
• When the taxpayer establishes that the
Taxpayer paid or incurred deductible
expenses but does not establish the amount
of the deduction to which the taxpayer is
entitled, the Taxpayer may be entitled to
estimate the amount allowable. Cohan v.
Commissioner, 39 F.2d 540 (2d. Cir. 1930).
• The taxpayer must present sufficient
evidence for the Court to make an estimate
because without such a basis, any allowance
would amount to largesse.
62
Substantiation: Car Expense
• Adams v. Commissioner, T.C. Memo.
2013-92. Mileage log that only indicates
the state visited does not substantiate
under Treas. Reg. § 1.2745T(b)(6)(i)(B). Furthermore, the general
lack of business purpose contained in
the Taxpayer’s ledger was grounds for
finding that she did not substantiate.
63
Substantiation: Medical Expenses
• Taxpayers are entitled to deduct the amount of the
taxpayer’s and the taxpayer’s spouse or dependent’s
medical care expenses to the extent those expenses
exceed 10% of the taxpayers AGI.
• Examples:
– Cost of diagnosis, cure, mitigation, treatment, or prevention
of disease, and costs for treatments affecting any structure
or function of the body. IRC § 213 (d)(1)(A).
• Two-part “but for” test in Jacobs v. Commissioner, 62
T.C. 813, 819 (1974). Petitioner must prove
expenditures:
– Were an essential element of the treatment, and
– Would not otherwise been incurred for non-medical reasons.
64
Substantiation: Charitable
Deductions - IRC § 170
• Charitable contribution is the voluntary transfer of property
without adequate consideration.
• Payments to a qualified organization are deductible as
charitable contributions to the extent that they exceed the fair
market value of any material benefit received in return.
• A § 170 deduction for the full amount is allowed only if the donor
receives no substantial benefit from the contribution.
• If the taxpayer receives an item of value for a payment to a
charitable organization:
– Payment is not deductible unless taxpayer intends to make a gift,
and
– Any deduction is limited to the excess of the payment over the fair
market value of what is received in exchange.
65
Substantiation: Charitable
Deductions, cont.
•
Charitable deductions are allowed as a deduction only if verified under
regulations prescribed by the Secretary.
–
–
The obligation to substantiate charitable contribution deductions are clear and
unambiguous.
No disclosure statement is required when:
•
•
•
•
Taxpayer shall maintain for each contribution one of the following:
–
–
–
•
The goods or services given to a donor meet the standards for insubstantial value
There is no donative element involved in a particular transaction with a charity, or
There is only an intangible religious benefit provided to the donor.
Cancelled check
Receipt from the donee charitable organization showing the name of the donee, date of
contribution and amount of contribution.
In the absence of a cancelled check or receipt from the donee, other reliable written
records showing the name of the donee, the date of contribution and amount of the
contribution. .
Non-Cash Charitable Contributions
–
–
Value is the fair market value at the time of the contribution.
Need name of donee, date and location of the contribution, and description of the
property.
66
Substantiation: Employee
Business Expenses - Form 2106
• Purpose: Form is used if the taxpayer is an
employee deducting ordinary and necessary
expenses for their job.
– Ordinary Expense: common and accepted in the
taxpayer’s trade or business
– Must be of a common or frequent occurrence in
the type of business involved
– Necessary Expense: helpful and appropriate for
the taxpayer’s business
• Must be directly connected with or pertaining
to the taxpayer’s trade or business.
67
Substantiation: Business Use of a
Home
•
Qualifying for a Deduction for Business Use of a Home:
– Taxpayer must use part of the home:
• Exclusively and regularly as principal place of business.
• Exclusively and regularly as the place where taxpayers meets or deals with
patients, clients, or customers in the normal course of trade or business.
• In the case of separate structure not attached to the home, in connection with
trade or business.
• On a regular basis for certain storage use.
• For rental use.
• As a daycare facility.
•
Where taxpayer’s business is conducted in part at a home office and in
part at other locations, the following two primary factors are considered
in determining whether the home office qualifies under IRC §
280A(c)(1)(A) as the taxpayer’s principal place of business:
– Relative importance of activities performed at each business location, and
– Amount of time spent at each location.
68
Substantiation: Business Use of a
Home, cont.
•
Exclusive Use Test
– To qualify, taxpayer must use a specific area of home solely for the purpose
of carrying on a trade or business.
– Taxpayer does not meet requirements of exclusive use test if taxpayer uses
the area in question both for business and personal purposes.
– Exception: If taxpayer uses part of the home for storage of inventory or
product samples, the taxpayer can deduct expenses for the business use of
the taxpayer’s home without the exclusive use test it the taxpayer:
•
•
•
•
•
•
Sells products at wholesale or retail as trade or business
Keeps inventory or product samples in the home as trade or business
Taxpayer’s home is the only fixed location of trade or business
Taxpayers uses the storage space on a regular basis, and
The space taxpayer uses is a separately identifiable space suitable for storage.
Regular Use Test
– Taxpayer must use specific area of taxpayer’s home for business on a
regular basis.
• Incidental or occasional business use of not regular use.
• Use must be continuous, ongoing, or recurring.
69
Substantiation: Travel and
Entertainment Expenses
• Taxpayer can deduct ordinary and necessary expenses incurred
while away from home in the pursuit of a trade or business.
• To deduct travel and entertainment expenses, taxpayer must not
only satisfy the general requirements of IRC § 162 but also the
strict substantiation requirements of IRC § 274(d).
– The Cohan Doctrine cannot be used to estimate a deduction for
travel expenses. Schladweiler v. Commissioner, T.C. Memo. 2000351, affd. 28 Fed. Appx. 602 (8th Cir. 2002).
– No deduction is allowed for travel and entertainment unless the
taxpayer substantiates by adequate records or sufficient evidence
corroborating the taxpayer’s own statement, the following elements:
• Amount of each separate expenditure
• Date of departure and return and the number of days spent on
business
• The place of destination of city, and
• The business reason or expected business benefit from the travel.
70
Substantiation: Travel and
Entertainment Expenses, cont.
• A contemporaneous log is not required, but corroborative
evidence used to support the deduction must have a high
degree of probative value to elevate such statement to the level
of credibility of a contemporaneous log.
• Travel away from the home generally requires that the taxpayer
remain either overnight or for a period requiring sleep or rest.
• Taxpayers cannot deduct the daily cost of commuting to and
from work, as such expenses is considered to be personal and
nondeductible. Brockman v. Commissioner, T.C. Memo. 2003-3;
Commissioner v. Flowers, 326 U.S. 465, 473-474 (1946).
• Taxpayers cannot deduct travel expenses for a spouse or
dependent unless those person are employees or have a bona
fide business purpose. IRC § 274(m)(3)(A) & (B).
71
Substantiation: Entertainment
Expenses
• Taxpayer can deduct entertainment expenses if they are both
ordinary and necessary and meet one of the following tests.
– Expenses must be directly related to the active conduct of the
taxpayer’s trade or business, or
• Taxpayer must have had more than a generalized expectation of
deriving income or a specific benefit at some indefinite future time from
those entertained.
• Expenses for entertainment, even if connected with the taxpayers trade
or business, will generally be considered not directly related to active
conduct of taxpayers trade or business if the entertainment occurred
under circumstances where the was little or no possibility of engaging
in the active conduct of trade or business.
– Meeting or discussion at a sporting event is generally considered a
circumstance where there is little or no possibility of engaging in the active
conduct of a trade or business. Treas. Reg. § 1.274-2(c)(7)(ii)(a).
72
Substantiation: Cellular Phone
• Cell phones are listed property and require
substantiation.
• Tash v. Commissioner, T.C. Memo. 2008120. Court disallowed claimed cell phone
expenses because the record did not indicate
whether petitioner used his cellular phone for
business and/or personal calls.
• The employer must require the employee to
have the cell phone in order for it to be
deductible.
73
Dependency Exemption
• Section 151(a) and (c) allows a taxpayers an annual
exemption deduction for each dependent as defined
in section 152.
– Dependent is either a qualifying child or a qualifying relative.
– Four requirements: qualifying child means an individual:
• Who bears a relationship to the taxpayer described in
paragraph (2)
• Who has the same principal place of abode as the taxpayer for
more than one-half of such taxable year
• Who meets the age requirements of paragraph (3)
• Who has not provided over one-half of such individual’s own
support for the calendar year in which the taxable year of the
taxpayer begins, and
• Who has not filed a joint return with the individual’s spouse
under section 6013.
74
Section 152(e) Special Rule for
Divorced Parents
•
•
•
Non-custodial parent may be entitled to claim a dependency exemption
deduction for a child notwithstanding the residency requirement of section
152(c)(1)(B), the support requirement of section 152(d)(1)(C), and the so-called
tie-breaking rule of section 152(c)(4).
A child will be treated as the non-custodial parent’s qualifying child or relative if
five requirements are. See sec. 152(e)(1) and (2).
Section 152(e)
–
A child who receives over one-half of the child’s support during the calendar year from
the child’s parents:
•
•
•
–
Who are divorced or legally separated under a decree of divorce or separate maintenance
Who are separated under a written separation agreement, or
Who live apart at all times during the last 6 months of the calendar year, and
Such child is in the custody of 1 or both of the child’s parent for more than one-half of
the calendar year, such child shall be treated as being the qualifying child or relative of
the non-custodial parent if:
•
•
The custodial parent signs a written declaration that such custodial parent will not claim such
child as a dependent for any taxable year beginning in such calendar year
The non-custodial parent attaches such written declaration to the non-custodial parent’s return
75
Section 152(e) Special Rule for
Divorced Parents, cont.
•
The IRS has issued Form 8332 in order to standardize the written
declaration requirement of section 152(e).
– Form 8332 requires:
• Name of child.
• Name and social security number of the non-custodial parent claiming the
dependency exemption deduction.
• Social security number of the custodial parent.
• Signature of the custodial parent.
• Date of the custodial parent’s signature.
• The years for which the claims were released.
•
•
Form 8332 is not required but any other written declaration must
conform to the substance of Form 8332. See Miller v. Commissioner,
114 T.C. 184, 189 (2000), aff’d on another ground sub nom.
Judge Vasquez held that attaching proof a custody arrangement does
not satisfy Section 152. See Sanatana v. Commissioner, T.C. Memo.
2012-49. The Court held that the mediation agreement attached to the
return was so ambiguous as to not satisfy the requirements of Section
153(e).
76
Free Exercise of Religion
• Begay v. Commissioner, T.C. Memo. 201317. Taxpayer argued that her Navajo clan
considered a child to be a member of the clan
and therefore a qualifying child.
– Court held that taxpayer not entitled to claim child
as dependent.
– Section 152(c) does not require a taxpayer to
forego their religious beliefs nor deny a tax benefit
because of such beliefs so exercise of religion
argument not valid.
77
Earned Income Credit
• Section 32(a) provides an earned
income credit for an eligible individual
for so much of the taxpayer’s earned
income for the taxable year as does not
exceed the earned income amount.
– Eligibility is based on income and
qualifying children.
78
First time home buyer credit
•
Section 36
–
An individual who is a first-time homebuyer of a principal residence in the U.S. shall be
allowed a credit of an amount equal to 10% of the purchase price but not exceeding
$8,000.
•
•
•
•
•
•
–
–
First time homebuyer means any individual if such individual had no present ownership interest
in a principal residence during the 3-year period ending on the date of the purchase of the
principal residence.
Married Filing Separately: Credit is limited to $4,000.
Unmarried individuals allocate the credit.
Phase-out for income in excess of $125,000.
No credit is allowed for the purchase of an residence if the purchase price exceeds $800,000.
Purchaser must be over 18 years of age.
Rodriguez v. Commissioner, T.C. Memo 2011-122. The Court held that the purchase of
a home by a minor taxpayer’s parents by taxpayer’s guardian lacked economic
substance, and thus under step transaction, taxpayer’s subsequent purchase of the
home from guardian was effectively a purchase from the taxpayer’s parents that
prohibited the taxpayer from claiming the first time homebuyer credit.
Zampella v Commissioner, T.C. Memo 2012-359. The Tax Court held that the taxpayer
did not “purchase” the home used to claim the credit. The taxpayer inherited a one-half
interest in the home from his mother and purchased the other half from his brother.
79
Witnesses
• To compel the attendance of a witness at trial, a party can
obtain a subpoena from the Clerk’s office in Washington, D.C. or
from the trial clerk at the trial session.
• As provided for in Tax Court Rule 147, the party must fill out the
subpoena and have it served by the marshal or by another
person who is not a party.
• Service is accomplished by delivering a copy of the subpoena to
the witness and by tendering the witness’s fee for one day’s
attendance and the mileage allowed by law.
• There is no geographical limit for service of a Tax Court
subpoena.
• Under Tax Court Rule 147(b), a party may also use a subpoena
to require a witness to produce books, papers, documents,
electronically stored information, or tangible things.
80
Settlement Options
81
Voluntary Binding Arbitration
• Parties may move that any factual issue in controversy be
resolved through voluntary binding arbitration. A joint stipulation
must accompany the motion, stating the issues to be resolved
through arbitration and the parties’ agreement to be bound by
the findings of the arbitrator. The arbitrator is appointed by Court
order. Tax Court Rule 124.
• Report by Parties: the parties shall promptly report to the Court
the findings made by the arbitrator and shall attach to their
report any written report or summary that the arbitrator may
have prepared.
• Selection and Payment of the Arbitrator
– Parties must stipulate to a procedure for jointly selecting the
arbitrator with each party agreeing to pay one half of the arbitrator’s
compensation, expenses and related fees. IRM 35.5.5.2 (08-112004).
82
Voluntary Binding Arbitration, cont.
•
Limitations with Respect to the Arbitrator
– Information to be considered
• Parties stipulation should precisely describe the kind of information and any
limitations related thereto that the arbitrator is permitted to consider.
– Contacts with or by the arbitrator
• Stipulation should prohibit ex parte contacts with the arbitrator.
– Scope of arbitrator’s work
• Stipulation should reflect that the arbitrator is not permitted to make any findings
or provide reasoning that represents an interpretation of the law.
– Legal Guidance to the arbitrator
• Any applicable legal guidance should be stipulated beforehand.
• In extraordinary circumstances when some guidance has been overlooked, the
parties may further stipulate to the provision of legal guidance to the arbitrator.
•
General Supervisory Powers of the Court
– Parties must stipulate to the general supervisory powers of the court.
– Stipulation should note that the case will be assigned to a particular judge or
special trial judge who will have continuing jurisdiction over the case.
– The court’s participation is in the nature of oversight.
83
Mediation
•
•
•
Mediation is a confidential process in which a neutral third party directs
settlement discussions.
Non-binding
Agreement to Mediate - IRM 35.5.5.8 (12-14-2010)
–
The IRM states that the agreement should be as concise as possible but include the
following elements:
•
•
•
•
•
•
•
•
•
•
•
•
Specify the issues to be mediated
Provide how and when each party will present its case to the mediator
Might require each party to submit a list of participants
Contain an acknowledgment by the taxpayer that all participants shall have access to all
taxpayer’s returns
Prohibit ex-parte contacts with mediator
Acknowledgment of IRC § 7214(a)(8)
If Appeals mediator is selected, written agreement shall include a statement confirming the
employee’s proposed service as mediator and waiver of conflicts
Agreement should state that mediation is confidential
Any party may withdraw at any time
Any settlement reached shall not serve as an estoppel in any other proceeding
Schedule of dates
Nothing contained in Tax Court Rule 124 shall be construed to exclude use by
the parties of other forms of voluntary disposition of cases including mediation.
84
Negotiating with Respondent’s
Representatives
• Recently, Respondent’s counsel has
brought an Appeals Officer to calendar
calls to negotiate with taxpayers.
– Taxpayers sometimes show up to calendar
call with records to substantiate claimed
deductions that Respondent’s counsel has
not previously seen.
85
Remand
•
•
•
•
Absent limiting statutes, courts generally have “the inherent authority to
issue such orders as they deem necessary and prudent to achieve the
orderly and expeditious disposition of cases,” Williams v.
Commissioner, 92 T.C. 920, 932 (1989) (citing Roadway Express, Inc.
v. Piper, 447 U.S. 752, 764-65 (1980), and quoting Link v. Wabash
R.R. Co., 370 U.S. 626, 630-31 (1962)).
The Tax Court noted in Friday v. Commissioner, 124 T.C. 220, 221-22
(2005), that the Court can remand to an agency if it retains jurisdiction
over the underlying case, such as an Appeals Office does in a CDP
determination.
The Tax Court can remand in CDP cases when an Appeals officer
abused his discretion in some way. See Med. Practice Solutions, LLC
v. Commissioner, T.C. Memo. 2009-214 (remanding because the
Appeals officer determined to proceed with collection without making
the requisite verifications).
Tax Court can remand when the Appeals officer did not develop the
record enough for the Court to properly review it. See Hoyle v.
Commissioner, 131 T.C. 197, 204-05 (2008).
86
Remand, cont.
• Tax Court has remanded where the law changed between the
CDP hearing and the Tax Court trial if that may have affected a
taxpayer’s presentation of his case. Harrell v. Commissioner,
T.C. Memo. 2003-271.
• Remand is appropriate in cases where there has been a
material change in a taxpayers’ factual circumstances between
the time of the hearing and the time a case is put on the trial
calendar. See Churchill v. Commissioner, T.C. Memo 2011-182.
– Court can remand a CDP case for consideration of changed
circumstances if it would be helpful, necessary or productive.
• The hearing on remand provides the parties with the opportunity
to complete the initial IRC § 6320 hearing while preserving the
taxpayer’s right to receive judicial review of the ultimate
administrative determination. Kelby v. Commissioner, 130 T.C.
79, 86 (2008); Wadleigh v. Commissioner, 134 T.C. 280, 299
(2010).
87
Settlement in “S” Cases
• Purpose of the “S” case procedure is to reduce the time involved
in the preparation, execution, and filing of settlement documents
in a small case.
• Computations: small cases may be settled on the basis of a
specific dollar amount agreed upon by both parties to
approximate the amount that would have been reached if formal
computations had been made.
• Contact with Collection: if it would facilitate the settlement of a
small case, consideration should be given to assisting the
petitioner in making the initial contact with Collection.
• Counsel Settlement Memorandum: The Office of Chief Counsel
encourages brevity in Counsel Settlement Memoranda in small
case.
88
Post-Trial Briefing
89
Time for Filing Briefs
• Simultaneous briefs
– Opening briefs within 75 days after conclusion of
trial
– Answering briefs 45 days thereafter
– The Court’s preference has been for simultaneous
briefs
• Seriatim briefs
– Opening briefs within 75 days after conclusion of
trial
– Answering brief within 45 days thereafter
– Reply brief within 30 days after the due date of the
answering brief
90
Points Relied Upon
• Centerpiece of the brief.
– If reader is not persuaded after reading this
section, then brief should be rewritten or
practitioner should consider settlement.
91
Requested Findings of Fact
• If written correctly from a properly tried case,
the argument section should be superfluous.
• Should be viewed as the building one
detailed brick at a time.
• Should be drawn from the record with very
little poetic license.
• Should always be followed by one or more
citation to the record
92
Argument
•
•
•
•
•
•
•
•
Carefully structured
Easy to follow
Precisely researched
Should provide the Court with the materials to draft a scholarly opinion in your
favor
Should provide the Court with powerful quotes or literary allusions
Citations must be precise
Avoid citing Memorandum decisions where regular opinions are available
Argument
–
–
•
•
Form and neatness are important
Careful thought should be given to how the argument appears on the page
–
–
•
Start with affirmative contentions
Leave rebuttal material to the end or to the reply brief
Are there visual breaks
Are critical elements broken into subsections and underscored
Tempo is important
–
Do arguments start strong and end strong?
93
Reply Brief
• Reply brief should be drawn only after
you have outlined the structure of your
opponent’s argument.
• Argument in rebuttal should focus upon
the critical points in your opponent’s
structure.
• Remainder of the argument should seek
to undermine the Court’s confidence in
your opponent.
94
Volunteer Attorneys/Students
95
Tax Court Rule 24(a)(5) - Law Student
Assistance Effective as of May 5, 2011
• With the permission of the presiding Judge or Special
Trial Judge, and under the direct supervision of
counsel in a case, a law student may assist such
counsel by presenting all or any part of the party's
case at a hearing or trial. In addition, a law student
may assist counsel in a case in drafting a pleading or
other document to be filed with the Court. A law
student may not, however, enter an appearance in
any case, be recognized as counsel in a case, or sign
a pleading or other document filed with the Court.
The Court may acknowledge the law student
assistance.
96
Student Participation in Court
Proceedings Under the Academic Clinical
• The Court will permit students who are enrolled in an
academic clinic for credit and in good standing with
their school to participate in proceedings before the
Court pursuant to the following procedures:
– lead counsel who intends to request permission for a
student/fellow to participate in proceeding before the Court
shall obtain from the petitioner advance written consent for
the student/fellow to participate in the case. This written
consent does not need to be submitted to the Court;
– when a case is called for trial, lead counsel shall answer the
calendar call, advise the Court whether the case is ready for
hearing or trial, and introduce any student/fellow enrolled in
the academic clinic who seeks permission to participate in
the proceedings;
97
Academic Clinical, cont.
• If the Court permits a student/fellow to participate in a case upon
compliance with the previous two requirements, lead counsel
shall remain in the courtroom at petitioners’ counsel table at all
times during the hearing or trial of the case. A student/fellow
who is permitted to participate in a case may, at the discretion of
the presiding Judge or Special Trial Judge, present all or any
part of a petitioner’s case at a hearing or trial. A presiding Judge
or Special Trial Judge may at any time exercise discretion to
require the student/fellow to step aside and to require lead
counsel to complete the hearing or trial.
• An academic clinic submitting a pleading, motion, stipulation, or
other paper to the Court for filing may include a statement in the
body of the document including the name of any student/fellow
enrolled in the academic clinic who participated in the
preparation of the document. However, a student/fellow may not
sign a document submitted to the Court for filing.
98
Additional Activities
• Help develop record in petitioner’s counsel
room
• Legal research
• Draft subpoenas
• Prepare post-trial briefs
– Deadlines
– Oversight
• Prepare witness/petitioner for trial
– Students can receive special admission from the
Court to practice
• Admitted attorney requests for special admission
99
Appeal
100
Appeal
• No appeal of “S” cases.
• Venue is based on location of taxpayer’s
residence (individuals) or principal place of
business (corporations) when petition was
filed.
• Taxpayer and the government may agree to
appeal to a different circuit. IRC § 7482.
• Notice of appeal must be filed within 90 days
after entry of decision. IRC § 7483, Tax Court
Rule 190.
101
IRC § 7482(b)
• If an issue does not fall under any of the
enumerated categories in IRC §
7482(b)(1)(A) through (F), then the Court of
Appeals for the District of Columbia may
review decisions of the Tax Court.
– IRC § 6015 is not included in the enumerated
categories.
• See James Bamberg, A Different Point of
Venue: The Plainer Meaning of Section
7482(b)(1), 61 Tax Lawyer 445 (Winter
2008).
102
Tax Court Rule 201
Incorporation of Model Rules
Practitioners before the Court shall
carry on their practice in accordance
with the letter and spirit of the Model
Rules of Professional Conduct of the
American Bar Association (“ABA”).
103
Before the Notice of Deficiency:
The Government’s Obligation to Examine the Notice of
Deficiency and determine if it is supported by competent
evidence.
104
Greenberg’s Express v.
Commissioner, 62 T.C. 324 (1974)
• The petitioners sought an order directing the IRS to produce
records relating to the examination of Thomas and Joseph
Gambino by the IRS or the DOJ in order to show that the
examination was not in good faith and for a legitimate purpose.
– The Tax Court was not persuaded by mere allegation that the
government might destroy evidence supporting the Gambinos’
claims.
– Generally the Court will not look behind the Notice of Deficiency to
examine the evidence used or the propriety of the IRS’s motives or
of the administrative policy or procedure involved in making a
determination. Human Engineering Institute v. Commissioner, 61
T.C. 61, 66 (1973).
– The exception to that rule is that on occasion the Court will look
behind the Notice of Deficiency when there is substantial evidence
of unconstitutional conduct on the IRS’s part and the integrity of the
judicial process would be impugned. Efrain T. Suarez v.
Commissioner, 58 T.C. 792 (1972).
105
Weimerskirch v. Commissioner,
596 F.2d 358 (9th Cir. 1979)
• The “Naked Notice”
• The Court held that there was no
presumption of correctness attached to
a naked notice asserting omitted
income, unsupported by any predicate
evidence and the taxpayer is relieved of
the burden of going forward with the
evidence.
106
Other Cases and Materials
I.R.C. § 7491
•
Burden shifts where taxpayer produces credible evidence.—
– 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.
•
Limitations.--Paragraph (1) shall apply with respect to an issue only if—
– the taxpayer has complied with the requirements under this title to
substantiate any item;
– 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
– in the case of a partnership, corporation, or trust, the taxpayer is described
in section 7430(c)(4)(A)(ii) Subparagraph (C) shall not apply to any qualified
revocable trust (as defined in section 645(b)(1)) with respect to liability for
tax for any taxable year ending after the date of the decedent's death and
before the applicable date (as defined in section 645(b)(2)).
107
Filing the Tax Court Petition
108
Filing the Tax Court Petition
• Issue:
– Can you file a Petition if you have no defense to the
deficiency?
– Can you “require the government to prove its case?”
• Answer:
– Probably Not.
• A petitioner must introduce credible evidence before requiring
the government to prove their findings. Nevertheless, the
failure to do so will generally not result in a penalty under sec.
6673 unless the court finds the petitioner is purposely delaying
the process with a meritless “tax protester” claim or known
frivolous defenses.
109
31 CFR § 10 Practice Before the
Internal Revenue Service
•
31 U.S.C. §330. Practice before the Department
– Under 31 U.S.C. § 330, the Secretary of the Treasury has the authority to
regulate and sanction all representatives practicing before the Treasury
Department, including its agencies such as the IRS, and the applicable
regulations are codified under 31 CFR § 10.
•
IRS Circular 230, under the authority of 31 CFR § 10, spells out the
duties and sanctions of all persons representing taxpayers before the
Internal Revenue Service. Representatives, as described in the text,
covers a wide range of tax practitioners including but not limited to
CPA’s, tax attorneys, tax preparers, etc. The rules spelled out in this
section, for the most part, mimic the candor and professionalism
requirements of the ABA rules for Attorney Conduct.
– Specifically, 31 CFR § 10.20 requires that the practitioner have actual or
good faith belief that the information provided to the court is accurate and
true, with the following Sec. 10.21 and 10.22 referring to known client
omissions and diligence to checking the accuracy of the information being
presented to the court.
110
31 CFR § 10, cont.
• Sec. 10.23 further states that “a practitioner may not
unreasonably delay the prompt disposition of any matter before
the Internal Revenue Service.” This sub-section, read in
conjunction with the preceding ones, prohibits a practitioner
from putting forth any matter that he has unreasonably failed
check upon its truth and accuracy as it would cause a delay of
the process.
• 31 CFR § 10.50 specifies the types and amount of sanctions
that may be imposed on practitioners for a violation of the above
rules and regulations. Namely, under this authority, the
Secretary may, after notice and opportunity to respond, censure,
suspend, or disbar any practitioner from appearing before the
Department. Further, the Secretary may impose monetary
penalties in an amount “not exceed[ing] the gross income
derived (or to be derived) from the conduct giving rise to the
penalty.”
111
I.R.C. § 6673 Sanctions and Costs
Awarded by Courts
• Sec. 7491 states that the Secretary shall have the burden of
proof if the taxpayer introduces credible evidence with respect to
any factual issues relevant to his tax liability, and sec. 6673
imposes a penalty of up to $25,000.00 on any taxpayer who
institutes or maintains a proceeding which is frivolous or
groundless, or one brought about primarily for delay.
• In Coleman v. C.I.R., the Seventh Circuit described a frivolous
petition as one that is “contrary to established law and
unsupported by a reasoned, colorable argument for change in
the law.” The court further explained that it uses a subjective
bad faith test as well as an objective “should have known” test
for determining whether the petitioner should be penalized
under sec. 6673. In the majority of cases where petitioners
have been unable to produce credible evidence to support their
positions, the court has denied to impose a penalty under sec.
6673, leaving the taxpayers with a stern warning instead.
112
I.R.C. § 6673, cont.
• That was the case in Stewart v. C.I.R., where the court decided
not to impose penalties since at least one of the petitioner’s
arguments was not frivolous. The court nevertheless stated that
“[it] may impose this penalty in the future if he makes frivolous
arguments or institutes proceedings primarily for delay.”
• Several courts however have penalized petitioners for
advancing “tax protester” claims, or repeated groundless claims,
or wholly frivolous claims for the sole purpose of causing delay.
In Sauers v. C.I.R., the court penalized the petitioner under sec.
6673 for filing memos with his petition regarding “tax protester”
arguments, and filing several lengthy documents purporting to
be motions. Similarly in Wetzel v. C.I.R., the court imposed the
penalty since “Petitioner [was] a professional tax return preparer
who knew or should have known that his arguments are
frivolous.”
113
ABA Rules of Attorney Conduct
• ABA Model Rule 3.3 – Candor Toward
The Tribunal
– A lawyer shall not knowingly:
• make a false statement of fact or law to a
tribunal or fail to correct a false statement of
material fact or law previously made to the
tribunal by the lawyer
114
I.R.C. § 7491
• 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.
115
I.R.C. § 7491 Cont.
• Limitations - Paragraph (1) shall apply with respect to
an issue only if:
– the taxpayer has complied with the requirements under this
title to substantiate any item;
– 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
– in the case of a partnership, corporation, or trust, the
taxpayer is described in section 7430(c)(4)(A)(ii)
Subparagraph (C) shall not apply to any qualified revocable
trust (as defined in section 645(b)(1)) with respect to liability
for tax for any taxable year ending after the date of the
decedent's death and before the applicable date (as defined
in section 645(b)(2)).
116
I.R.C. § 6673
• Tax Court proceedings—
– Procedures instituted primarily for delay, etc.-Whenever it appears to the Tax Court that—
• proceedings before it have been instituted or maintained
by the taxpayer primarily for delay,
• the taxpayer's position in such proceeding is frivolous or
groundless, or
• the taxpayer unreasonably failed to pursue available
administrative remedies, the Tax Court, in its decision,
may require the taxpayer to pay to the United States a
penalty not in excess of $25,000.
117
ABA Model Rule 3.2 - Expediting
Litigation
• A lawyer shall make reasonable efforts
to expedite litigation consistent with the
interests of the client.
118
Abrams v. Comm'r of Internal
Revenue, 82 T.C. 403 (1984)
• Court reprimanding petitioner saying
that “[w]hen the costs incurred by this
Court and respondent are taken into
consideration, the maximum damages
authorized by the statute do not begin to
indemnify the United States for the
expenses which petitioner's frivolous
and groundless action has occasioned.”
119
Smith v. C.I.R., 80 T.C.M. (CCH)
377 (T.C. 2000)
• Concluding that “petitioner's position is
frivolous and groundless and was
instituted primarily for delay,” and
setting a penalty of $3,500 under sec.
6673.
120
Holmes v. C.I.R., 91 T.C.M. (CCH)
1050 (T.C. 2006)
• Finding petitioner liable for instituting
the procedures primarily for delay.
121
Answering the Petition
122
Issue
• Does the government have to admit that
documents necessary to calculate
deficiency or statute of limitations are
"lost?”
• Answer: Probably Not.
• Are there any civil counterparts to
Brady, Jencks and Giglio?
123
Brady, Jencks and Giglio
• The discovery obligations of federal
prosecutors are generally established
by Federal Rules of Criminal Procedure
16 and 26.2, 18 U.S.C. §3500 (the
Jencks Act), Brady v. Maryland, 373
U.S. 83 (1963), and Giglio v. United
States, 405 U.S. 150 (1972).
• Are there any civil counterparts to
Brady, Jencks and Giglio?
124
Answer
• Although there is considerable debate over whether
government agencies are even held to the same
standards as criminal prosecutors when handling
evidence, it is largely accepted that mere negligence,
without more, is not grounds for a finding of Due
Process violation.
• There seems to be no settled law on this issue, as
explained in Garavaglia v. C.I.R., however a closer
analysis of related legal principles may provide a
glimpse into a yet to be determined area of tax court
procedure.
125
IRM 13.1.15/ § 1203 Employee
Misconduct Allegation
•
•
Internal sources, taxpayers, or third parties may refer improper
behavior by an IRS agent to his manager or the Human Capital Office,
Employee Conduct and Compliance Office (ECCO) pursuant to § 1203
by filling a Form 12217.
Sec. 1203 covers the following types of IRS agent and employee
misconduct:
–
–
–
–
–
–
–
–
–
–
–
False statements under oath;
Falsification of documents;
Assault or battery;
Misuse of IRC § 6103 (Disclosure);
Threat of Audit;
Seizure violations;
Infringement of taxpayer’s constitutional rights;
Harassment/Retaliation;
Discrimination;
Failure to file; or
Understatement of liability.
126
Brady Rule Consideration
•
Most courts have rejected the application of Brady to civil and
administrative hearings. In Mister Disc. Stockbrokers, Inc. v. S.E.C.,
the Seventh Circuit very methodically disclaimed the petitioner’s
argument.
– First, the court noted that the Federal Rules of Civil and Criminal Procedure
are not applicable in administrative hearings, and that each agency can
create their own discovery rules so long as they insure that fundamental
fairness is met as required for due process. Also, the court pointed out that
administrative proceedings do not warrant such extensive discovery rules
as criminal proceedings since the possible penalties are not as severe,
even if they are “quasi-criminal” as described by the petitioner in the case.
– In U.S. ex rel. (Redacted) v. (Redacted), the court once again pointed to the
fundamentally different consequences of a civil case from a criminal
sanction as the reason for denying a Brady-like discovery request.
– In Tandon v. C.I.R., the application of the Brady rule was denied simply
because “the [c]ircuit has never applied the Brady rule to a civil proceeding
for determining the amount of one's tax liability.”
127
Brady Rule Consideration, cont.
• Only a few courts have dared to rule that the Brady rule should
also apply to civil and administrative hearings, the most notable
being the Southern District Court of New York in Sperry &
Hutchinson Co. v. FTC.
– In Sperry, the court said that “the essentials of due process at the
administrative level require similar disclosures by the agency where
consistent with the public interest. In civil actions, also, the ultimate
objective is not that Government “shall win a case, but that justice
shall be done.”
– Similarly, in Equal Employment Opportunity Comm'n v. Los Alamos
Constructors, Inc., ruling on an appeal from an administrative
hearing, the court firmly believed that “the responsibilities of
government lawyers [are] fully applicable to government counsel in
civil cases.” This was based on the idea that U.S. Attorneys are
representatives of a sovereignty and thus should be impartial in all
dealings. This line of argument has gained little traction in recent
years, as civil and administrative courts seem to favor judicial
economy.
128
Other Cases and Materials
• Ferguson v. Roper, 400 F.3d 635 (8th Cir. 2005).
– Court did not find a Due Process violation in the
prosecution’s loss of potentially exculpatory evidence
“[a]bsent a showing of bad faith on the part of the police or
prosecutor,” which petitioner could not provide.
• Dixon v. C.I.R., 316 F.3d 1041 (9th Cir. 2003).
– Court imposed sanctions upon Respondents in Tax Court for
manipulating witnesses and destroying or hiding exculpatory
evidence stating that “When we conclude that the integrity of
the judicial process has been harmed, however, and the
fraud rises to the level of “an unconscionable plan or scheme
which is designed to improperly influence the court in its
decisions,” we not only can act, we should.”
129
Other Cases and Materials, cont.
• N.L.R.B. v. Nueva Eng'g, Inc., 761 F.2d 961 (4th Cir.
1985).
– On appeal from an administrative hearing, court finds Brady
rule request meritless stating that “an action for violations of
the National Labor Relations Act is civil in nature, does not
involve potential incarceration and violation of the Act does
not carry with it the stigma of a criminal conviction.”
• Demjanjuk v. Petrovsky, 10 F.3d 338 (6th Cir. 1993).
– Court finding in favor of applying the Brady rule considering
that “the consequences of denaturalization and extradition
[are] equal or exceed those of most criminal convictions.”
130
Other Cases and Materials, cont.
• Justin Goetz, Hold Fast the Keys to the Kingdom:
Federal Administrative Agencies and the Need for
Brady Disclosure, 95 Minn. L. Rev. 1424, 1435-36
(2011).
– Article explores the role of Brady/Giglio in administrative
court hearings by comparing several agencies’ procedures
with the Federal Rules, ultimately declaring “this results in
two separate standards for civil defendants--greater
protections in Article III courts and lesser protections in the
Article I courts hitherto profiled in addition to the substantial
differences in due process protections between Brady
criminal defendants and civil enforcement defendants.”
131
ABA Model Rule 3.3 – Candor
Toward The Tribunal
• A lawyer shall not knowingly:
– make a false statement of fact or law to a tribunal or fail to
correct a false statement of material fact or law previously
made to the tribunal by the lawyer;
– fail to disclose to the tribunal legal authority in the controlling
jurisdiction known to the lawyer to be directly adverse to the
position of the client and not disclosed by opposing counsel;
or
– offer evidence that the lawyer knows to be false. If a lawyer,
the lawyer’s client, or a witness called by the lawyer, has
offered material evidence and the lawyer comes to know of
its falsity, the lawyer shall take reasonable remedial
measures, including, if necessary, disclosure to the tribunal.
A lawyer may refuse to offer evidence, other than the
testimony of a defendant in a criminal matter, that the lawyer
reasonably believes is false.
132
ABA Model Rule 3.3, cont.
• A lawyer who represents a client in an adjudicative proceeding
and who knows that a person intends to engage, is engaging or
has engaged in criminal or fraudulent conduct related to the
proceeding shall take reasonable remedial measures, including,
if necessary, disclosure to the tribunal.
• The duties stated in paragraphs (a) and (b) continue to the
conclusion of the proceeding, and apply even if compliance
requires disclosure of information otherwise protected by Rule
1.6.
• In an ex parte proceeding, a lawyer shall inform the tribunal of
all material facts known to the lawyer that will enable the tribunal
to make an informed decision, whether or not the facts are
adverse.
133
ABA Model Rule 3.4 – Fairness to
Opposing Party and Counsel
• A lawyer shall not:
– unlawfully obstruct another party’s access to evidence or
unlawfully alter, destroy or conceal a document or other
material having potential evidentiary value. A lawyer shall
not counsel or assist another person to do any such act;
– falsify evidence, counsel or assist a witness to testify falsely,
or offer an inducement to a witness that is prohibited by law;
– knowingly disobey an obligation under the rules of a tribunal,
except for an open refusal based on an assertion that no
valid obligation exists;
– in pretrial procedure, make a frivolous discovery request or
fail to make reasonably diligent effort to comply with a legally
proper discovery request by an opposing party;
134
ABA Model Rule 3.4, cont.
• A lawyer shall not:
– in trial, allude to any matter that the lawyer does not reasonably
believe is relevant or that will not be supported by admissible
evidence, assert personal knowledge of facts in issue except when
testifying as a witness, or state a personal opinion as to the
justness of a cause, the credibility of a witness, the culpability of a
civil litigant or the guilt or innocence of an accused; or
– request a person other than a client to refrain from voluntarily giving
relevant information to another party unless:
– the person is a relative or an employee or other agent of a client;
and
– the lawyer reasonably believes that the person’s interests will not
be adversely affected by refraining from giving such information.
135
Backdating a/k/a Temporal
Modification of Documents
• Not necessarily illegal or unethical if the
document seeks to be effective as of a
prior date. A document may be
backdated to memorialize past action or
intent. The threshold question is
whether the event occurred on the
backdate or whether the event occurred
on another date.
136
Backdating That Fabricates
– U.S. Projector & Elec. Corp. v. Commissioner, T.C. Memo. 1969549 for the finding that the act of executing rescission agreement
fixed petitioner’s liability to return funds previously received, the
event which determined the timing of a tax deduction. The back
dating was the event that fixed the resulting tax treatment, not
memorializing it.
– United States v. Wilson, 118 F.3d 228 (4th Cir. 1997) involved an
attorney who sought to conceal his client’s assets from the IRS by
backdating promissory notes to make it appear that the client was
obligated to repay certain unconditionally received amounts.
– Medieval Attraction N.V. v. Commissioner, 72 T.C.M. (CCH) 924
(1996) involved an effort to claim tax deductions by backdating
documents to make it appear that intangible property had been
transferred to a related party so that payments to the related party
could be treated as tax deductible royalties.
137
Other Taxpayers' Files (Offensive and
Defensive Use of sec. 6103)
138
Issue
• Under what circumstances can the
government use information in another
taxpayer's files against a petitioner in
Tax Court?
• Under what circumstances can the
petitioner in Tax Court access
information in another taxpayer's file?
• Prior reports of IRS agents acting as
government experts.
139
Answer
• The analysis of I.R.C. § 6103 inherently begins with 5 U.S.C. §
552, commonly known as the Freedom of Information Act
(FOIA).
– Requests for tax returns and other documents held by Federal
Agencies are done under FOIA and thus, all of its exemptions
apply.
– Of particular interest to tax petitioners are Exemptions 3 and 5.
Under Exemption 3, the government may prevent the release of
records that are “specifically exempted from disclosure by statute.”
– In this light, sec. 6103 becomes relevant in that it requires that
“returns and return information” remain confidential unless
otherwise authorized by Title 26.
– Exemption 5 protects inter-or intra-agency letters or memoranda
“which would not be available by law to a party ... in litigation with
the agency.
140
Answer, cont.
• The government may access information in another taxpayers
return if the information fits within the parameters of sec.
6103(h)(4), allowing disclosure of a return “(B) if the treatment of
an item reflected on such return is directly related to the
resolution of an issue in the proceeding; (C) if such return or
return information directly relates to a transactional relationship
between a person who is a party to the proceeding and the
taxpayer which directly affects the resolution of an issue in the
proceeding.”
– In In re U.S., the court, following a lengthy statutory de-construction
analysis, held that “directly related” language should be read
narrowly, saying that “[t]he disclosure of a third party return in a tax
proceeding will be subject to [an items-test], except that such items
... must have a direct relationship to the resolution of an issue of the
taxpayer's liability.”
– Violation of Sec. 6103 disclosure rules is among the listed grounds
for a Sec. 1203 Complaint against an IRS Agent/ employee.
141
IRS Reports under FOIA
• IRS reports have been generally held as attorneywork product or as part of the agency’s “deliberative
process” and privileged under FOIA Exemption 5.1
The protection of reports as “deliberative process” is
designed to prevent the release of inter or intraagency communication made as part of the
government’s decision and policy making process.
“A document is predecisional if it was prepared in
order to assist an agency decisionmaker in arriving at
his decision, rather than to support a decision already
made.”
142
Other Cases and Materials
• ABA Model Rule 3.4
– See above
• ABA Model Rule 4.4 Respect For Rights Of Third
Persons
– In representing a client, a lawyer shall not use means that
have no substantial purpose other than to embarrass, delay,
or burden a third person, or use methods of obtaining
evidence that violate the legal rights of such a person.
– A lawyer who receives a document or electronically stored
information relating to the representation of the lawyer's
client and knows or reasonably should know that the
document or electronically stored information was
inadvertently sent shall promptly notify the sender.
143
What third-party contacts must the
government disclose? Does I.R.C.
§ 7602 apply in Tax Court?
144
Westreco, Inc. v. Commissioner,
T.C. Memo. 1990-501
• Counsel for Respondent was actively involved in an audit of the
taxpayer for years subsequent to what the Court was
considering. During the audit process counsel for Respondent
issued administrative summonses for documents and testimony
of the taxpayers’ employees under I.R.C. 7602. The issues
before the Court and with the audit were substantially similar.
– The Tax Court held that counsel’s participation in the audit
undermined the Tax Court’s rules of discovery.
– The Tax Court was also concerned that the stipulation process
would be made more difficult and greatly delayed while subsequent
years’ summons were pursued.
– Respondent would also be unable to provide a full and timely
response to the taxpayer’s discovery request. Respondent’s
litigating posture would be continually be delayed and would
depend on the progress of the subsequent year examination.
145
Mary Kay Ash v. Commissioner, 96
T.C. 459 (1991)
• The Court found that summons issued before the
filing of petition were not subject to Westreco
restrictions.
• The Court was also unwilling to restrict information
gathered through issuance of summons before the
petition was filed but resulted in information being
gathered post-petition. The Court noted that it was
unable to enforce its discovery rules prior to the filing
of a petition.
• The opinion was reviewed by the Court with Judges
Nims, Korner, Shields, Hamblen, Cohen, Clapp,
Gerber, Jacobs, Parr, Wells, Colvin, and Halpern
agreeing with the majority.
146
Protective Orders
• Excessive Discovery
– The Tax Court may order a protective order where
the IRS engages in inappropriate and excessive
formal discovery without any conference between
the parties.
• Protective orders from other courts
– The Tax Court has allowed the Commissioner
access to documents in another case that was
subject to a protective order by the other court.
147
Communication with Persons
Represented by Counsel
148
Can the Government contact
employees of the Taxpayer?
• ABA Model Rule of Professional
Conduct 4.2:
– In representing a client, a lawyer shall not
communicate about the subject of the
representation with a person the lawyer
knows to be represented by another lawyer
in the matter, unless the lawyer has the
consent of the other lawyer or is authorized
to do so by law or a court order.
149
Can the Government contact
employees of the Taxpayer, cont.
• Comment [7] provides:
– In the case of a represented organization, this Rule prohibits
communications with a constituent of the organization who
supervises, directs or regularly consults with the organization’s
lawyer concerning the matter or has authority to obligate the
organization with respect to the matter or whose act or omission in
connection with the matter may be imputed to the organization for
purposes of civil or criminal liability. Consent of the organization’s
lawyer is not required for communication with a former constituent.
If a constituent of the organization is represented in the matter by
his or her own counsel, the consent by that counsel to a
communication will be sufficient for purposes of this Rule. Compare
Rule 3.4(f). In communicating with a current or former constituent of
an organization, a lawyer must not use methods of obtaining
evidence that violate the legal rights of the organization. See Rule
4.4.
150
• Model Rule 4.2 advances the well
recognized public policy favoring the
preservation and protection of the
attorney-client relationship. See Cram v.
Lamson & Sessions Co., 148 F.R.D.
259, 260 (S.D.Iowa 1993).
151
Communicating with Former Employees FU Investment Co., Ltd. v. Commissioner, 104 T.C. 408 (1995)
•
The Tax Court was asked to address whether the protection of Model
Rule 4.2 extended to former employees of a corporation/petitioner.
– The Court in holding that Rule 4.2 does not extend to former employees,
cited the ABA Standing Committee on Ethics and Professional
Responsibility, Formal Opinion 91-359 in which the ABA takes the view that
Rule 4.2 should not be interpreted to prohibit ex-parte communications with
former employees.
– The Court was cautious in that they recognized that circumstances may
arise where certain precautions (including a narrowly drawn protective
order) may be warranted to ensure that such ex-parte contacts are not
simply a forum for counsel to seek information protected by the attorneyclient privilege.
– The Court advised Respondent that they must advise former employees
that respondent and petitioner are adverse parties to a proceeding and that
the attorney must conduct the interview in conformity with Model Rule 4.3
(Dealing with Unrepresented Persons).
152
Henthorn Motions
• U.S. v. Henthorn, 931 F.2d 29 (9th Cir. 1991)
provides that, in the context of a criminal case, the
government must disclose information favorable to
the defense that meets the appropriate standard of
materiality. The government is obligated upon a
defendant’s request to examine the personnel files of
government employees it intends to call as witnesses
in a criminal trial in order to determine if any portions
of the files ought to be made available to the defense
for impeachment purposes once the defense has
made a demand for their production.
153
IRS Treatment of Requests for
Personnel Records
• IRM § 11.3.35.8.1 (01-01-2006)
– Requests and demands for testimony and/or
production of personnel and payroll records in
private litigation or administrative proceedings is
coordinated by the IRS Disclosure Office with the
Transactional Processing Center (TPC).
– The Office of Personnel Management regulations
require that subpoenas for personnel records must
be approved by a judge or magistrate of a court of
competent jurisdiction in order to meet the court
order exception in the Privacy Act (5 U.S.C. §
552a(b)(11)).
154
5 U.S.C. 552a - FOIA
• Exemption 11
– No agency shall disclose any record which
is contained in a system of records by any
means of communication to any person, or
to another agency, except pursuant to a
written request by, or with the prior written
consent of, the individual to whom the
record pertains, unless disclosure of the
record would be pursuant to the order of a
court of competent jurisdiction.
155
FOIA Exemption 6
• 5 U.S.C. 552(b)(6) generally prohibits
the disclosure of personnel and medical
files and similar files the disclosure of
which would constitute a clearly
unwarranted invasion of privacy.
156
IRS Employee Timesheets
• Federal Courts have held that
disclosure of an IRS employees time
sheets, which are “similar” to personnel
files, would constitute a clearly
unwarranted invasion of personal
privacy.
157
Immunizing Witnesses
• What efforts can and should the
government take to immunize witnesses
needed by a taxpayer?
• In the context of criminal cases 18
U.S.C. § 6002 grants prosecutors broad
discretion to grant immunity to a
witness, but grants no right to defendant
to do the same.
158
Immunizing Witnesses, cont.
• The Third Circuit has recognized a judicial authority
to grant immunity “when it is found that a potential
defense witness can offer testimony which is clearly
exculpatory and essential to the defense case and
when the government has not strong interest in
withholding immunity. See Gov’t of V.I. v. Smith, 615
F.2d 964, 974 (3d Cir. 1980).
• United States v. Burke, 425 F.3d 400 (7th Cir. 2005)
recognizes the principle that, although the court
cannot order the government to immunize a defense
witness, courts can dismiss an indictment where the
prosecutor’s refusal to grant immunity has violated
the defendant’s right to due process.
159
A VIEW FROM THE BENCH
WHEN:
Monday, September 23, 2013, 6:00 PM – 9:00 PM
Seminar from 6:00 PM – 8:00 PM
Reception from 8:00 PM – 9:00 PM
WHERE:
New York County Lawyers’ Association
14 Vesey Street
New York, NY 10007
FEATURING:
TOPICS:
THE HONORABLE JOHN COLVIN
United States Tax Court
How to Effectively Represent the Previously
Self-Represented
Ethical Issues Concerning Pro Bono
Representation
RECEPTION SPONSORED BY:
1.
Tax Court Jurisdiction
a.
Common Notices in Pro Bono Cases Which Are Predicates to US Tax Court
Jurisdiction:
i.
Notice of deficiency - Before the IRS can assess and collect certain types
of taxes (e.g., income tax, estate and gift tax), a notice of deficiency must
be issued to the taxpayer or a notice of liability to a transferee.
(1)
If a notice of deficiency is issued, the recipients have the right,
within specified time limits, to litigate the correctness of the
deficiency, or the extent of transferee liability in the Tax Court
without first paying the tax. IRC §6213(a)
ii.
Notice of Determination - The Tax Court has jurisdiction under IRC
§6330(d)(1) with respect to a timely filed petition disputing a valid notice
of determination issued by an Appeals officer. See Lunsford v. CIR, 117
T.C. 159 (2001)
iii.
Final Notice of Determination with Respect to IRC § 6015 relief. IRC
§6015
2.
U.S. Tax Court Petition
a.
Petition:
i.
Filing Fee
(1)
ii.
General
(1)
iii.
The Tax Court recently simplified the Application for Waiving of
Filing Fee so that it is easier to fill out.
Deficiency or Liability Action
(a)
Should conform to Form 1 shown in Appendix I of the Tax
Court Rules, and
(b)
Shall comply with the requirements of the Rules relating to
Pleadings.
Content of Petition in Deficiency or liability action:
(1)
Individual
(a)
Petitioner’s name
(b)
State of legal residence
(c)
mailing address
(d)
The office of the IRS with which the tax return for the
period in controversy was filed
(e)
the date of the Notice of Deficiency or liability, or other
proper allegations showing jurisdiction of the Court, and
the City and State of the Office of the IRS which issued the
Notice.
(f)
The amount of the deficiency or liability
(g)
The nature of the tax
(h)
the year or years for which the determination was made
(i)
Clear and concise assignments of each and every error
which the petitioner alleges to have been committed by the
Commissioner in the determination of the deficiency or
liability
(i)
(j)
Any issued not raised in the assignment of error
shall be deemed to be conceded.
Clear and concise statements of the facts on which the
petitioner bases the assignment of error, except for issues to
which the burden of proof is on the Commissioner
(k)
A prayer setting forth the relief sought by the petitioner
(l)
The signature, mailing address, and telephone number of
each petitioner or petitioner’s counsel as well as counsel’s
Tax Court bar number.
(i)
(m)
iv.
b.
A copy of the Notice of deficiency or liability
Rule 23(g): Effective as of July 6, 2012. Prohibits the Clerk from refusing
to file a paper because it is not in the form prescribed by the Rules.
Answer
i.
The Commissioner shall have 60 days from the date of service of the date
of service of the petition within which to file an answer, or 45 days from
that date within which to move with respect to the petition.
ii.
Form and Content
(1)
iii.
c.
Rule 33(a) was amended July 6, 2012 to state that
Each pleading shall be signed in the manner
provided in Rule 23. Where there is more than one
attorney of record, the signature of only one is
required. Except when otherwise specifically
directed by the Court, pleadings need not be
verified or accompanied by affidavit or declaration.
The answer should be drawn so that it will advise the petitioner
and the Court fully of the nature of the defense.
Effect: every material allegation set out in the petition and not expressly
admitted or denied in the answer shall be deemed to be admitted.
Reply
i.
Time to reply or move
(1)
ii.
Petitioner shall have 45 days from the date of service of the answer
within which to file a reply, or 30 days from that date within which
to move with respect to the answer.
Form and Content:
(1)
In response to each material allegation in the answer and the facts
in support thereof on which the Commissioner has the burden of
proof, the reply shall contain a specific admission or denial
(a)
iii.
New Material:
(1)
d.
Any new material contained in the reply shall be deemed to be
denied.
Timely Petition required: in all cases, the jurisdiction of the Court also depends
on the timely filing of a petition.
i.
ii.
e.
Contempt of Court: may be punished by fine or imprisonment within the
scope of IRC § 7456(c).
(1)
Misbehavior of any person in its presence or so near thereto as to
obstruct the administration of justice
(2)
Misbehavior of any of its officers in their official transactions; or
(3)
Disobedience or resistence to its lawful writ, process, order, rule,
decree, or command
Bankruptcy and Receivership
(1)
For bankruptcy, see 11 U.S.C. 362(a)(8) and IRC 6213(f)(1).
(2)
For receivership, see IRC §6871(c)(2).
Pleadings
i.
ii.
Initial Pleadings
(1)
Petition (90 days). Rule 20.1
(2)
Answer (60 days). Rule 36.
(3)
Reply (45 days). Rule 37.
General rules
(1)
Purpose of pleadings is to give the parties and the Court fair notice
of the matters in controversy and the basis for their respective
positions
(2)
Each averment to a pleading shall be simple, concise, and direct.
(a)
1
if the petitioner is without knowledge or information
sufficient to form a belief as to the truth of the allegation,
the petitioner shall so state.
There are no technical forms of pleading
Unless otherwise noted all references to Rules are to the U.S. Tax Court Rules.
(3)
(4)
iii.
Consistency:
(a)
A party may set forth two or more statements of a claim or
defense alternatively or hypothetically
(b)
If two or more statements are made in the alternative and
one of them would be sufficient if made independently, the
pleading is not made insufficient by the insufficiency of
one or more of the alternative claims. Rule 31(c).
All pleadings shall be so construed as to do substantial justice.
Form - Rule 32
(1)
(2)
Caption; Names of parties: every pleading must contain a caption
setting forth:
(a)
The name of the Court
(b)
The title of the case
(c)
The docket number, and
(d)
A designation to show the nature of the pleading
Separate statement: all averments of claim or defense, and
supporting statements, shall be made in separately designated
paragraphs
(a)
(3)
iv.
Each paragraph should be limited to a single item or single
set of circumstances
Adoption by reference: statements may be adopted by reference in
a different part of the same pleading or in another pleading or in
any motion
Signing of Pleadings
(1)
The signature of counsel or a party constitutes a certificate by the
signer that the signer has:
(a)
read the pleading, and
(b)
that, to the best of the signer’s knowledge, information, and
belief formed after reasonable inquiry, it is well grounded
in fact and is warranted by existing law, or a good faith
argument for an extension, modification, or reversal of
existing law; and that it is not interposed for any improper
purpose, such as to harass or to cause unnecessary delay or
needless increase in the cost of litigation.
(2)
f.
The signature of counsel constitutes a representation by counsel
that counsel is authorized to represent the party on whose behalf
the pleading is filed.
Standing Pretrial Order:
i.
Issued with notice of trial at the direction of the trial judge to facilitate the
orderly and efficient disposition of all cases on the trial calendar
ii.
Failure to comply with the standing pretrial order may subject a party or
counsel to sanctions. Rule 131.
iii.
A sample pre-trial order is included in the Exhibits section.
3.
Pre-trial motions
a.
Motion for judgment on the pleadings - Tax Court Rule 120
i.
Motion for summary judgment
(1)
Matters outside the pleading are presented to the Court with
supporting affidavits
(2)
Summary judgment may be requested upon all or any part of the
legal issues in controversy
(a)
(3)
ii.
Decision will be rendered as a matter of law if there is no genuine
issue as to any material fact - Tax Court rule 121.
Motion to Submit Case Without Trial
(1)
iii.
if faced with a motion for summary judgment, practitioners
should be prepared to argue that a genuine issue of material
facts does exists necessitating trial
Party may move to submit case without trial if the submission of
evidence is not needed because sufficient facts have been admitted,
stipulated, established by deposition, or included in the record in
some other way - Tax Court Rule 122.
Motion in Limine
(1)
Motion to exclude certain evidence or expert report on grounds
that it is privileged, its relevance is outweighed by risk of prejudice
or confusion, or it is cumulative.
4.
Pre-Trial Activities
a.
Duty to Disclose/Informal Discovery
i.
The Court expects the parties to attempt to attain the objective of
discovery through informal consultation or communication before using
the Tax Court discovery rules. See Branerton v. Commissioner, 61 T.C.
6911 692 (1974).
ii.
The standing pretrial order typically requires the parties to exchange all
documents and other evidence that they intend to use at trial (except for
impeachment purposes) at least 14 days before trial.
(1)
b.
The Court may exclude documents not exchanged in accordance
with standing pretrial order unless good cause is shown.
Formal Discovery
i.
Interrogatories - Tax Ct. R. 71
(1)
Unless otherwise stipulated or ordered by the Court, a party may
serve upon any other party no more than 25 written interrogatories,
including all discrete subparts but excluding interrogatories
described in paragraph (d) of this Rule, to be answered by the
party served or, if the party served is a public or private
corporation or a partnership or association or governmental
agency, by an officer or agent who shall furnish such information
as is available to the party. A motion for leave to serve additional
interrogatories may be granted by the Court to the extent consistent
with Rule 70(c)(1).
ii.
Requests for Production of Documents or Things. Tax Ct. R. 72.
iii.
Tax Ct. R. 70 Recent Amendments
(1)
Tax Ct. R. 70(a)(2)
(a)
Discovery shall not be commenced, without leave of Court,
before the expiration of 30 days after joinder of issue (see
Rule 38). Discovery shall be completed and any motion to
compel or any other motion with respect to such discovery
shall be filed, unless otherwise authorized by the Court, no
later than 45 days prior to the date set for call of the case
from a trial calendar. Discovery by a deposition under Rule
74(c) may not be commenced before a notice of trial has
been issued or the case has been assigned to a Judge or
Special Trial Judge and any motion to compel or any other
motion with respect to such discovery shall be filed within
the time provided by the preceding sentence. Discovery of
matters which are relevant only to the issue of a party's
entitlement to reasonable litigation or administrative costs
shall not be commenced, without leave of Court, before a
motion for reasonable litigation or administrative costs has
been noticed for a hearing, and discovery shall be
completed and any motion to compel or any other motion
with respect to such discovery shall be filed, unless
otherwise authorized by the Court, no later than 45 days
prior to the date set for hearing.
(2)
Tax Ct. R. 70(b):
(a)
(3)
The information or response sought through discovery may
concern any matter not privileged and which is relevant to
the subject matter involved in the pending case. It is not
ground for objection that the information or response
sought will be inadmissible at the trial, if that information
or response appears reasonably calculated to lead to
discovery of admissible evidence, regardless of the burden
of proof involved. If the information or response sought is
otherwise proper, it is not objectionable merely because the
information or response involves an opinion or contention
that relates to fact or to the application of law to fact. But
the Court may order that the information or response
sought need not be furnished or made until some
designated time or a particular stage has been reached in
the case or until a specified step has been taken by a party.
Tax Ct. R. 70(c):
(a)
The frequency or extent of use of the discovery methods set
forth in paragraph (a) shall be limited by the Court if it
determines that: (A) The discovery sought is unreasonably
cumulative or duplicative, or is obtainable from some other
source that is more convenient, less burdensome, or less
expensive; (B) the party seeking discovery has had ample
opportunity by discovery in the action to obtain the
information sought; or (C) the discovery is unduly
burdensome or expensive, taking into account the needs of
the case, the amount in controversy, limitations on the
parties' resources, and the importance of the issues at stake
in the litigation. The Court may act upon its own initiative
after reasonable notice or pursuant to a motion under Rule
103.
iv.
Requests for Admissions. Tax Ct. R. 90.
v.
Witness Interviews
vi.
c.
Depositions
(1)
Allowed with consent of the parties
(2)
Expert witness on its own motion
Stipulations
i.
Rule 91
(1)
Required:
(a)
(2)
Comprehensive:
(a)
(3)
(4)
(5)
the fact that any matter may have been obtained through
discovery or requests for admission is not grounds for
omitting such matter from the stipulation
Form:
(a)
In writing
(b)
Signed by the parties thereto or by their counsel
(c)
shall observe the requirements of Tax Court Rule 23 as to
form and style of papers, except the stipulation shall be
filed in duplicate but only one set of exhibits shall be filed
Filing:
(a)
Shall be filed by the parties at or before the commencement
of trial
(b)
a stipulation when filed does not need to be offered
formally to be considered in evidence
Objections:
(a)
(6)
Parties are required to stipulate, to the fullest extent to
which complete or qualified agreement can or fairly should
be reached, 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.
any objection to all or part of a stipulation should be noted
in the stipulation
Binding Effect
(a)
a stipulation shall be treated as a conclusive admission by
the parties to the stipulation
(7)
Noncompliance by a party:
(a)
ii.
Motion to Compel Stipulation: If, after the date of issuance
of trial notice in a case, a party has refused or failed to
confer with an adversary with respect to entering into a
stipulation, the party proposing stipulation may file a
motion to compel stipulation not less than 45 days prior to
the date set for call of the case from a trial calendar.
Branerton Conference
(1)
Bedrock of Tax Court practice. See Branerton Corp. v.
Commissioner, 61 T.C. 691 (1974).
(2)
Discovery and requests for admissions may not be commenced by
a party until after that party has made a meaningful, good faith
attempt to attain the objectives of discovery through informal
consultation or communication.
iii.
IRM 35.4.3.2 (08-11-2004)
iv.
What is available in Petitioner’s counsel room to help draft a stipulation?
(1)
Transcripts
(2)
Practitioners should have access to computer for internet access
and word processing program
(3)
Www.IRS.gov
(4)
Tax Court website - www.ustaxcourt.gov
5.
Trial
a.
Tax Court stuffer notice
i.
The Tax Court recently updated its procedures with respect to low-income
tax payers and access to Low Income Taxpayer Clinics (“LITC”).
ii.
The Tax Section of the ABA, the Office of Chief Counsel and the
Taxpayer Advocate were all concerned that low income taxpayers were
not given enough notice of the existence of LITCs.
(1)
b.
Use of Counsel Rooms
i.
c.
LITCs and Bar sponsored calendar call programs have use of petitioner’s
counsel room on the morning of the calendar call.
Change of Address
i.
The Court will send a change of address form (Form 10) with the
acknowledgment of the petition to remind petitioners that they need to
notify the Court when they change their address.
(1)
d.
Currently the Tax Court send stuffer notices to self-represented
taxpayers upon acknowledgment of the filing of a petition and
when the case is calendared for trial. Beginning October 1, 2013
the Court will start sending stuffer notices 30 days in advance of
trial.
Tax Ct. R. 21(b)(4) requires petitioners to inform the Court of a
change of address.
Call of the Calendar
i.
Time
(1)
ii.
The new 30 day notice of LITCs sent to self-represented taxpayers
encourages the taxpayer to arrive by 9AM on the date of the
calendar call. The Court is now requesting practitioners
participating in a calendar call program to arrive at the Court at
least one hour before the beginning of the calendar call.
General
(1)
A regular trial session of the Tax Court is ordinarily scheduled for
one to two weeks.
(2)
Trial session commences with call of the calendar
(3)
When a case is called at the calendar, the taxpayer’s counsel (or
taxpayer if pro se) and respondent’s counsel must be prepared to
inform the judge whether the case has been settled and, if so, to
state for the record the basis of the settlement or to submit a
written stipulation of the settlement.
e.
(4)
If the parties have not reached a basis of settlement, the case will
be set for trial.
(5)
Stipulation of Facts
(a)
Pro se taxpayers routinely do not prepare stipulations of
fact
(b)
Respondent prepares Stipulations of fact for taxpayers to
sign
(c)
Petitioner’s counsel must counsel taxpayers on the need to
stipulate and the binding nature of stipulations
Standards of Review:
i.
Deficiency
(1)
Montgomery v. CIR, 122 T.C. 1 (2004)
(a)
ii.
Innocent Spouse relief under IRC § 6015(f)
(1)
iii.
De novo. See Porter v. Commissioner, 132 T.C. No. 11.
Innocent Spouse relief under § 6015(b) and (c):
(1)
iv.
De novo. See Porter v. Commissioner, 132 T.C. No. 11.
When reviewing IRS determination under IRC §§ 6330/6320 - CDP
(1)
Abuse of discretion
(a)
f.
A person who has not received a notice of deficiency and
has not had a prior administrative or judicial opportunity to
challenge the amounts assessed may challenge the liability
as part of the collection review procedure.
Reliance on a failure to pay current taxes in rejecting a
collection alternative does not constitute an abuse of
discretion. See Orum v. Commissioner, 123 T.C. 1 (2004).
Burden of Proof
i.
Tax Court Rule 142
(1)
In general the burden of proof is on the petitioner, except as
otherwise provided for by statute or determined by the Court
(2)
(3)
Exceptions:
(a)
New matters
(b)
Increase in deficiency
(c)
Affirmative defenses
Fraud
(a)
In any case involving fraud with intent to evade tax, the
burden of proof is on the respondent
(i)
(4)
Transferee liability
(a)
ii.
Standard is clear and convincing evidence
Burden of proof is on the respondent to show that a
petitioner is liable as a transferee of property of a taxpayer,
but not to show that the taxpayer was liable for the tax. See
IRC § 6901(a).
IRC § 7491
(1)
7491(a):
(a)
(b)
Taxpayer can shift the burden to respondent if, in any court
proceeding,:
(i)
taxpayer introduces credible evidence with respect
to any factual issue relevant to ascertaining the
liability of the taxpayer
(ii)
taxpayer has complied with requirements of the
Code to substantiate any item
(iii)
taxpayer has maintained all records required under
the code. See Sec. 6001; Sec. 1.6001-1(a), Income
Tax Regs. for record keeping requirements.
(iv)
taxpayer has cooperated with reasonable requests
by the Secretary for witnesses, information,
documents, meetings and interviews, and
(v)
in the case of a partnership, corporation, or trust, the
taxpayer is described in IRC § 7430(c)(4)(A)(ii).
See Jones, “The Burden of Proof 10 Years After the Shift,”
121 Tax Notes 287 (October 20, 2008) for an analysis
leading to the conclusion that in most cases the shift has
had no impact and the decision is ultimately based on the
preponderance of the evidence.
(2)
(c)
See Knudsen v. Commissioner, T.C. Memo 2007-340 and
131 T.C. 185 (2008) (supplemental op.).
(d)
See Higbee v. Commissioner, 116 T.C. No. 28 (2001).
7491(b):
(a)
(3)
Secretary has the burden of proof in any court proceeding
with respect to any item of income which was
reconstructed by the Secretary solely through the use of
statistical information of unrelated taxpayers.
7491(c) Penalties
(a)
Secretary has the burden of production with respect to
liability for penalties, additions to tax, or additional
amounts imposed
(b)
Higbee v. Commissioner, 116 T.C. No. 28 (2001).:
Commissioner must come forward with sufficient evidence
indicating that it is appropriate to impose the relevant
penalty
(i)
iii.
IRC § 6201(d)
(1)
g.
once the Commissioner meets his burden of
production, the taxpayer must come forward with
evidence sufficient to persuade a Court that the
Commissioner’s determination if incorrect. See
Higbee v. Commissioner, 116 T.C. No. 128 (2001).
If an information return serves as the basis for the determination of
a deficiency, IRC § 6201(d) provides that in any court proceeding,
if:
(a)
Taxpayer asserts a reasonable dispute with respect to
income reported on an information return, and
(b)
Taxpayer has fully cooperated with the Commissioner, then
the Commissioner has the burden of producing reasonable
and probative information in addition to the information
return.
Evidence
i.
Rule 143: trials before the Court will be conducted in accordance with the
rules of evidence applicable in trials without a jury in the U.S. District
Court for the District of Columbia.
ii.
Hearsay
(1)
FRE 802: an out of court statement introduced to prove the truth of
that statement
(2)
Applicable exceptions in Tax Court
(a)
FRE 803(6) Business Records
(i)
A memorandum, report, record, or data compilation,
in any form of acts, events, conditions, opinions, or
diagnoses, made at or near the time by, or from
information transmitted by, a person with
knowledge, if kept in the course of a regularly
conducted business activity, and if it was the
regular practice of that business to make the record
(ii)
The records can be introduced with the testimony of
the custodian of records or by certification that
complies with FRE 902(11), FRE 902(12), or a
statute permitting certification, unless the source
indicates untrustworthiness.
(iii)
FRE 902(11)
1)
(3)
Tax returns:
(a)
A tax return is generally considered inadmissible hearsay
with the exception that the return may constitute an
admission by the taxpayer or someone on the taxpayer’s
behalf.
(i)
h.
A party intending to offer into evidence
under this rule must provide written notice
of that intention to all adverse parties, and
must make the record and declaration
available for inspection sufficiently in
advance of their offer into evidence to
provide an adverse party the opportunity to
challenge them.
Note: if the taxpayer stipulates to the tax return,
they have waived any hearsay argument.
Opening Statement
i.
Should start with a theme and end with that same theme
ii.
Provide a roadmap for the Court of how and why the decision should be
written in your favor
iii.
Personalize your client
(1)
It will be more difficult for the Court to find for the government if
you depict your client in a positive light
(a)
iv.
i.
Will adverse decision affect third parties?
(i)
Taxpayer’s employees
(ii)
Taxpayer’s family
Do not abandon an issue
(1)
After petitioner’s opening statement, respondent will ask the Court
whether petitioner has conceded any issue not discussed in their
opening statement. IRM 35.6.2.6 (08-11-2004).
(2)
If petitioner raises a new issue without having amended his
pleadings and respondent is prejudiced by surprise, respondent will
argue that the “new issue” is not before the court.
Rule 155 Computations
i.
If the parties are not in agreement as to the amount to be included in the
decision in accordance with the findings and conclusions of the Court,
then each party shall file with the Court a computation of the amount
believed by such party to be in accordance with the Court's findings and
conclusions. In the case of an overpayment, the computation shall also
include the amount and date of each payment made by the petitioner. A
party shall file such party's computation within 90 days of service of the
opinion or order, unless otherwise directed by the Court.
6.
Procedures Involving Taxpayer Interviews
a.
IRC § 7521
i.
7.
7521(a) Recording of Interview by Taxpayer: any officer or employee of
the IRS shall allow the taxpayer to make an audio recording:
(1)
Upon advance request
(2)
At taxpayer’s expense
(3)
With taxpayer’s own equipment
ii.
Taxpayers are entitled to record face-to-face CDP hearings. See Keene v.
Commissioner, 121 T.C. at 14.
iii.
“In-person interview” refers to an interview in which the IRS
representative and taxpayer are face-to-face. Taxpayers are not entitled to
record telephone CDP hearings. See Calafati v. Commissioner, 127 T.C.
No. 16.
iv.
7521(b) Safeguards: an officer or employee of the IRS shall provide to the
taxpayer prior to the interview:
(1)
In the case of an interview relating to the determination of tax, an
explanation of the audit process and the taxpayer’s rights under
such process, or
(2)
In the case of an interview relating to the collection of tax, an
explanation of the collection process and the taxpayer’s rights
under such process
v.
Section 7521(a) applies to representatives
vi.
This section does not apply to criminal investigations
Giamelli v. Commissioner, 129 T.C. 14 (2007):
a.
Tax Court held that their review is limited to the determination issued by
respondent’s Appeals Office. Since the only issue raised at Appeals was an
installment agreement, petitioner cannot then raise a new issue in Tax Court.
i.
The original taxpayer died after his CDP hearing. At Tax Court, his estate
attempted to argue that the estate was a different person and therefore had
not had the opportunity to raise the issue. The Court disagreed.
8.
Chenery Doctrine
a.
An administrative law principle that says a reviewing court, in dealing with a
determination or judgment which an administrative agency alone is authorized to
make, must judge the propriety of such action by the grounds invoked by the
agency. SEC v. Chenery Corp., 332 U.S. 194 (1947).
b.
Antioco v. Commissioner, T.C. Memo. 2013-35: The Tax Court determined that
the Chenery Doctrine applies in the CDP context and therefore the Court cannot
uphold a notice of determination on grounds other than those actually relied upon
by the Appeals Officer.
9.
Trial of “S” cases:
a.
Both the Code and the Tax Court rules contain special provisions applicable to
“small tax cases”.
b.
A small tax case is one in which neither the amount of the deficiency placed in
dispute nor the amount of any claimed overpayment exceeds $50,000.
c.
i.
Small case procedures are also available for a petitioner for innocent
spouse relief under IRC § 6015(e) where the amount of relief sought does
not exceed $50,000.
ii.
Small case procedure are available for CDP appeals under IRC § 6320(c)
or IRC § 6330 (d) where the unpaid tax does not exceed $50,000.
Small case procedures are elective
i.
Limitations:
(1)
In small tax cases the Court does not have jurisdiction to enter a
decision finding a deficiency or overpayment grater than the
$50,000 jurisdictional amount.
(2)
Small case decisions are not reviewable by an appellate court and
are not precedent for any other case.
ii.
Election is made on the petition or after the petition but before trial
iii.
Tax Court has the authority to revoke small case election on its own
motion before trial
(1)
iv.
d.
Tax Court rejected small tax case status where the issues were
common to other cases pending before it. Page v. Commissioner,
86 T.C. 1, 12 (1986).
Practice Tip: A taxpayer can obtain small tax case status where a
deficiency notice determines a deficiency greater than the statutory
amount by contesting an amount less than the statutory amount, even if
there is only one legal issue underlying the entire determined deficiency.
Kallich v. Commissioner, 89 T.C. 676 (1987), acq., 1989-1 C.B. 1.
Rule 177 provides that trials of small tax cases will be conducted as informally as
possible, consistent with orderly procedures, and any evidence deemed by the
court to have probative value will be admissible.
i.
IRM 35.6.2.12 (08-11-2004) states that where a pro se petitioner is doing
his best to present his case to the court, technical evidentiary or procedural
objections should not be made.
(1)
Respondent’s counsel should assist the pro se petitioner to bring
out all of the facts, and cross-examination should be for the
purpose of presenting to the court all the pertinent and competent
evidence.
e.
Common Issues in “S” Cases:
i.
Collection Due Process
(1)
(2)
After a CDP hearing, the Appeals Officer will issue a Notice of
Determination which advises the taxpayer of their right to seek
judicial review within 30 days after the date of the Notice of
Determination
(a)
The timing of a request for Tax Court Review concerning
denials of relief under IRC § 6015 is 90 days.
(b)
The request for review must be filed within 30 days if relief
is requested for other issues raised in the CDP hearing.
Treas. Reg. § 301.6320-1(f)(2), Q&A-F2.
The Tax Court reviews the Appeals Officer’s determination under
an abuse of discretion standard.
(a)
(3)
ii.
In its review for abuse of discretion, the Tax Court
generally only considers arguments and issues that were
raised at the CDP hearing or otherwise brought to the
attention to the Appeals office.
Robinette v. Commissioner, 123 T.C. 85 (2004):
(a)
There is a disagreement between the Tax Court, and the
IRS, Eighth Circuit and other courts concerning the scope
of the record on which such review should be based.
(b)
The Tax Court has held that it may review new evidence in
the course of reviewing whether an appeals officer abused
his discretion, i.e., its review is not limited to evidence
presented during the administrative appeal.
(c)
The Eighth Circuit, in Robinette v. Commissioner, 439
F.3d 445 (8th Cir. 2006), reversed the Tax Court taking the
position that, consistent with general principles of
administrative law and the Administrative Procedures Act,
judicial review of the IRS’s decision should be limited to
the administrative record developed at the hearing before
Appeals.
Substantiation
(1)
Taxpayer bears the burden of proving the entitlement to claimed
deductions. See Tax Court Rule 142(a); Welch v. Helvering, 290
U.S. 111 (1933).
(2)
IRC § 6001
(a)
(3)
Every taxpayer liable for any tax under the Internal
Revenue Code, or for collection thereof, shall keep records,
render such statements, make such returns, and comply
with such rules and regulations as the Secretary may from
time to time prescribe
Cohan Rule
(a)
When the taxpayer establishes that the Taxpayer paid or
incurred deductible expenses but does not establish the
amount of the deduction to which the taxpayer is entitled,
the Taxpayer may be entitled to estimate the amount
allowable. Cohan v. Commissioner, 39 F.2d 540 (2d. Cir.
1930).
(i)
(4)
Car Expense
(a)
(5)
The taxpayer must present sufficient evidence for
the Court to make an estimate because without such
a basis, any allowance would amount to largesse.
Adams v. Commissioner, T.C. Memo. 2013-92. Mileage
log that only indicates the state visited does not substantiate
under Treas. Reg. § 1.274-5T(b)(6)(i)(B). Furthermore, the
general lack of business purpose contained in the
Taxpayer’s ledger was grounds for finding that she did not
substantiate.
Medical Expenses
(a)
Taxpayers are entitled to deduct the amount of the
taxpayer’s and the taxpayer’s spouse or dependent’s
medical care expenses to the extent those expenses exceed
7.5% of the taxpayers AGI.
(b)
Examples:
(i)
(c)
Cost of diagnosis, cure, mitigation, treatment, or
prevention of disease, and costs for treatments
affecting any structure or function of the body. IRC
§ 213 (d)(1)(A).
Two-part “but for” test in Jacobs v. Commissioner, 62 T.C.
813, 819 (1974). Petitioner must prove expenditures:
(6)
(i)
Were an essential element of the treatment, and
(ii)
Would not otherwise been incurred for non-medical
reasons
Charitable Deductions - IRC § 170
(a)
Charitable contribution is the voluntary transfer of property
without adequate consideration.
(b)
Payments to a qualified organization are deductible as
charitable contributions to the extent that they exceed the
fair market value of any material benefit received in return
(c)
A § 170 deduction for the full amount is allowed only if the
donor receives no substantial benefit from the contribution
(d)
If the taxpayer receives an item of value for a payment to a
charitable organization:
(e)
(f)
(i)
Payment is not deductible unless taxpayer intends to
make a gift, and
(ii)
Any deduction is limited to the excess of the
payment over the fair market value of what is
received in exchange.
Charitable deductions are allowed as a deduction only if
verified under regulations prescribed by the Secretary
(i)
The obligation to substantiate charitable
contribution deductions are clear and unambiguous
(ii)
No disclosure statement is required when:
1)
The goods or services given to a donor meet
the standards for insubstantial value
2)
There is no donative element involved in a
particular transaction with a charity, or
3)
There is only an intangible religious benefit
provided to the donor
Taxpayer shall maintain for each contribution one of the
following:
(i)
Cancelled check
(ii)
Receipt from the donee charitable organization
showing the name of the donee, date of contribution
and amount of contribution
(iii)
(g)
(7)
Non-Cash Charitable Contributions
(i)
Value is the fair market value at the time of the
contribution
(ii)
Need name of donee, date and location of the
contribution, and description of the property
Employee Business Expenses - Form 2106
(a)
Purpose: Form is used if the taxpayer is an employee
deducting ordinary and necessary expenses for their job
(b)
Ordinary Expense: common and accepted in the taxpayer’s
trade or business
(i)
(c)
Must be of a common or frequent occurrence in the
type of business involved
Necessary Expense: helpful and appropriate for the
taxpayer’s business
(i)
(8)
In the absence of a cancelled check or receipt from
the donee, other reliable written records showing
the name of the donee, the date of contribution and
amount of the contribution.
Must be directly connected with or pertaining to the
taxpayer’s trade or business.
Business Use of a Home
(a)
Qualifying for a Deduction for Business Use of a Home:
(i)
Taxpayer must use part of the home:
1)
Exclusively and regularly as principal place
of business
2)
Exclusively and regularly as the place where
taxpayers meets or deals with patients,
clients, or customers in the normal course of
trade or business
3)
In the case of separate structure not attached
to the home, in connection with trade or
business
4)
On a regular basis for certain storage use
(b)
(c)
(d)
5)
For rental use, or
6)
As a daycare facility.
Where taxpayer’s business is conducted in part at a home
office and in part at other locations, the following two
primary factors are considered in determining whether the
home office qualifies under IRC § 280A(c)(1)(A) as the
taxpayer’s principal place of business:
(i)
Relative importance of activities performed at each
business location, and
(ii)
Amount of time spent at each location
Exclusive Use Test
(i)
To qualify, taxpayer must use a specific area of
home solely for the purpose of carrying on a trade
or business.
(ii)
Taxpayer does not meet requirements of exclusive
use test if taxpayer uses the area in question both
for business and personal purposes
(iii)
Exception: If taxpayer uses part of the home for
storage of inventory or product samples, the
taxpayer can deduct expenses for the business use
of the taxpayer’s home without the exclusive use
test it the taxpayer:
1)
Sells products at wholesale or retail as trade
or business
2)
Keeps inventory or product samples in the
home as trade or business
3)
Taxpayer’s home is the only fixed location
of trade or business
4)
Taxpayers uses the storage space on a
regular basis, and
5)
The space taxpayer uses is a separately
identifiable space suitable for storage
Regular Use Test
(i)
Taxpayer must use specific area of taxpayer’s home
for business on a regular basis.
(9)
1)
Incidental or occasional business use of not
regular use
2)
Use must be continuous, ongoing, or
recurring.
Travel and Entertainment Expenses - IRC § 274
(a)
Taxpayer can deduct ordinary and necessary expenses
incurred while away from home in the pursuit of a trade or
business
(b)
To deduct travel and entertainment expenses, taxpayer
must not only satisfy the general requirements of IRC §
162 but also the strict substantiation requirements of IRC §
274(d).
(i)
The Cohan Doctrine cannot be used to estimate a
deduction for travel expenses. Schladweiler v.
Commissioner, T.C. Memo. 2000-351, affd. 28 Fed.
Appx. 602 (8th Cir. 2002).
(ii)
No deduction is allowed for travel and
entertainment unless the taxpayer substantiates by
adequate records or sufficient evidence
corroborating the taxpayer’s own statement, the
following elements:
1)
Amount of each separate expenditure
2)
Date of departure and return and the number
of days spent on business
3)
The place of destination of city, and
4)
The business reason or expected business
benefit from the travel.
(c)
A contemporaneous log is not required, but corroborative
evidence used to support the deduction must have a high
degree of probative value to elevate such statement to the
level of credibility of a contemporaneous log
(d)
Travel away from the home generally requires that the
taxpayer remain either overnight or for a period requiring
sleep or rest
(e)
Taxpayers cannot deduct the daily cost of commuting to
and from work, as such expenses is considered to be
personal and nondeductible. Brockman v. Commissioner,
T.C. Memo. 2003-3; Commissioner v. Flowers, 326 U.S.
465, 473-474 (1946).
(f)
(10)
Taxpayers cannot deduct travel expenses for a spouse or
dependent unless those person are employees or have a
bona fide business purpose. IRC § 274(m)(3)(A) & (B).
Entertainment Expenses
(a)
Taxpayer can deduct entertainment expenses if they are
both ordinary and necessary and meet one of the following
tests
(i)
Expenses must be directly related to the active
conduct of the taxpayer’s trade or business, or
1)
Taxpayer must have had more than a
generalized expectation of deriving income
or a specific benefit at some indefinite future
time from those entertained
2)
Expenses for entertainment, even if
connected with the taxpayers trade or
business, will generally be considered not
directly related to active conduct of
taxpayers trade or business if the
entertainment occurred under circumstances
where the was little or no possibility of
engaging in the active conduct of trade or
business.
a)
(11)
Meeting or discussion at a sporting
event is generally considered a
circumstance where there is little or
no possibility of engaging in the
active conduct of a trade or business.
Treas. Reg. § 1.274-2(c)(7)(ii)(a).
Cellular Phone
(a)
Cell phones are listed property and require substantiation.
(b)
Tash v. Commissioner, T.C. Memo. 2008-120. Court
disallowed claimed cell phone expenses because the record
did not indicate whether petitioner used his cellular phone
for business and/or personal calls.
(c)
The employer must require the employee to have the cell
phone in order for it to be deductible.
iii.
Dependency Exemption
(1)
(2)
Section 151(a) and (c) allows a taxpayers an annual exemption
deduction for each dependent as defined in section 152.
(a)
Dependent is either a qualifying child or a qualifying
relative
(b)
Four requirements: qualifying child means an individual
(i)
Who bears a relationship to the taxpayer described
in paragraph (2)
(ii)
Who has the same principal place of abode as the
taxpayer for more than one-half of such taxable
year
(iii)
who meets the age requirements of paragraph (3)
(iv)
who has not provided over one-half of such
individual’s own support for the calendar year in
which the taxable year of the taxpayer begins, and
(v)
who has not filed a joint return with the individual’s
spouse under section 6013
Section 152(e) special rule for divorced parents
(a)
Non-custodial parent may be entitled to claim a
dependency exemption deduction for a child
notwithstanding the residency requirement of section
152(c)(1)(B), the support requirement of section
152(d)(1)(C), and the so-called tie-breaking rule of section
152(c)(4).
(b)
A child will be treated as the non-custodial parent’s
qualifying child or relative if five requirements are. See
sec. 152(e)(1) and (2).
(c)
Section 152(e)
(i)
A child who receives over one-half of the child’s
support during the calendar year from the child’s
parents:
1)
Who are divorced or legally separated under
a decree of divorce or separate maintenance
2)
Who are separated under a written
separation agreement, or
3)
(ii)
(d)
Who live apart at all times during the last 6
months of the calendar year, and
Such child is in the custody of 1 or both of the
child’s parent for more than one-half of the calendar
year, such child shall be treated as being the
qualifying child or relative of the non-custodial
parent if:
1)
The custodial parent signs a written
declaration that such custodial parent will
not claim such child as a dependent for any
taxable year beginning in such calendar year
2)
The non-custodial parent attaches such
written declaration to the non-custodial
parent’s return
The IRS has issued Form 8332 in order to standardize the
written declaration requirement of section 152(e).
(i)
Form 8332 requires:
1)
Name of child
2)
Name and social security number of the
non-custodial parent claiming the
dependency exemption deduction
3)
Social security number of the custodial
parent
4)
Signature of the custodial parent
5)
Date of the custodial parent’s signature
6)
The years for which the claims were
released.
(e)
Form 8332 is not required but any other written declaration
must conform to the substance of Form 8332. See Miller v.
Commissioner, 114 T.C. 184, 189 (2000), aff’d on another
ground sub nom.
(f)
Judge Vasquez held that attaching proof a custody
arrangement does not satisfy Section 152. See Sanatana v.
Commissioner, T.C. Memo.2012-49. The Court held that
the mediation agreement attached to the return was so
ambiguous as to not satisfy the requirements of Section
153(e).
(3)
Free Exercise of Religion
(a)
iv.
(i)
Court held that taxpayer not entitled to claim child
as dependent.
(ii)
Section 152(c) does not require a taxpayer to forego
their religious beliefs nor deny a tax benefit because
of such beliefs so exercise of religion argument not
valid.
Earned Income Credit
(1)
Section 32(a) provides an earned income credit for an eligible
individual for so much of the taxpayer’s earned income for the
taxable year as does not exceed the earned income amount
(a)
v.
Begay v. Commissioner, T.C. Memo. 2013-17. Taxpayer
argued that her Navajo clan considered a child to be a
member of the clan and therefore a qualifying child.
eligibility is based on income and qualifying children
First time home buyer credit
(1)
Section 36
(a)
(b)
An individual who is a first-time homebuyer of a principal
residence in the U.S. shall be allowed a credit of an amount
equal to 10% of the purchase price but not exceeding
$8,000.
(i)
First time homebuyer means any individual if such
individual had no present ownership interest in a
principal residence during the 3-year period ending
on the date of the purchase of the principal
residence
(ii)
Married Filing Separately: Credit is limited to
$4,000.
(iii)
Unmarried individuals allocate the credit
(iv)
Phase-out for income in excess of $125,000.
(v)
No credit is allowed for the purchase of an
residence if the purchase price exceeds $800,000.
(vi)
Purchaser must be over 18 years of age.
Rodriguez v. Commissioner, T.C. Memo 2011-122. The
Court held that the purchase of a home by a minor
taxpayer’s parents by taxpayer’s guardian lacked economic
substance, and thus under step transaction, taxpayer’s
subsequent purchase of the home from guardian was
effectively a purchase from the taxpayer’s parents that
prohibited the taxpayer from claiming the first time
homebuyer credit
(c)
f.
Zampella v Commissioner, T.C. Memo 2012-359. The Tax
Court held that the taxpayer did not “purchase” the home
used to claim the credit. The taxpayer inherited a one-half
interest in the home from his mother and purchased the
other half from his brother.
Witnesses
i.
To compel the attendance of a witness at trial, a party can obtain a
subpoena from the Clerk’s office in Washington, D.C. or from the trial
clerk at the trial session.
ii.
As provided for in Tax Court Rule 147, the party must fill out the
subpoena and have it served by the marshal or by another person who is
not a party.
iii.
Service is accomplished by delivering a copy of the subpoena to the
witness and be tendering the witness’s fee for one day’s attendance and
the mileage allowed by law
iv.
There is no geographical limit for service of a Tax Court subpoena
v.
Under Tax Court Rule 147(b), a party may also use a subpoena to require
a witness to produce books, papers, documents, electronically stored
information, or tangible things
10.
Settlement Options
a.
Voluntary Binding Arbitration
i.
Parties may move that any factual issue in controversy be resolved
through voluntary binding arbitration. A joint stipulation must accompany
the motion, stating the issues to be resolved through arbitration and the
parties’ agreement to be bound by the findings of the arbitrator. The
arbitrator is appointed by Court order. Tax Court Rule 124.
ii.
Report by Parties: the parties shall promptly report to the Court the
findings made by the arbitrator and shall attach to their report any written
report or summary that the arbitrator may have prepared
iii.
Selection and Payment of the Arbitrator
(1)
iv.
Parties must stipulate to a procedure for jointly selecting the
arbitrator with each party agreeing to pay one half of the
arbitrator’s compensation, expenses and related fees. IRM 35.5.5.2
(08-11-2004).
Limitations with Respect to the Arbitrator
(1)
Information to be considered
(a)
(2)
Contacts with or by the arbitrator
(a)
(3)
v.
stipulation should prohibit ex parte contacts with the
arbitrator
Scope of arbitrator’s work
(a)
(4)
parties stipulation should precisely describe the kind of
information and any limitations related thereto that the
arbitrator is permitted to consider
stipulation should reflect that the arbitrator is not permitted
to make any findings or provide reasoning that represents
an interpretation of the law
Legal Guidance to the arbitrator
(a)
any applicable legal guidance should be stipulated
beforehand
(b)
in extraordinary circumstances when some guidance has
been overlooked, the parties may further stipulate to the
provision of legal guidance to the arbitrator
General Supervisory Powers of the Court
b.
(1)
Parties must stipulate to the general supervisory powers of the
court.
(2)
Stipulation should note that the case will be assigned to a
particular judge or special trial judge who will have continuing
jurisdiction over the case.
(3)
The court’s participation is in the nature of oversight
Other Methods
i.
Mediation
(1)
Mediation is a confidential process in which a neutral third party
directs settlement discussions.
(2)
Non-binding
(3)
Agreement to Mediate - IRM 35.5.5.8 (12-14-2010)
(a)
The IRM states that the agreement should be as concise as
possible but include the following elements
(i)
Specify the issues to be mediated
(ii)
Provide how and when each party will present its
case to the mediator
(iii)
Might require each party to submit a list of
participants
(iv)
Contain an acknowledgment by the taxpayer that all
participants shall have access to all taxpayer’s
returns
(v)
Prohibit ex-parte contacts with mediator
(vi)
Acknowledgment of IRC § 7214(a)(8)
(vii)
If Appeals mediator is selected, written agreement
shall include a statement confirming the employee’s
proposed service as mediator and waiver of
conflicts
(viii) Agreement should state that mediation is
confidential
(ix)
Any party may withdraw at any time
(x)
Any settlement reached shall not serve as an
estoppel in any other proceeding
(xi)
ii.
c.
Nothing contained in Tax Court Rule 124 shall be construed to exclude
use by the parties of other forms of voluntary disposition of cases ,
including mediation.
Negotiating with Respondent’s Representatives
i.
Recently, Respondent’s counsel has brought an Appeals Officer to
calendar calls to negotiate with taxpayers.
(1)
d.
Schedule of dates
Taxpayers show up to calendar call with records to substantiate
claimed deductions that Respondent’s counsel has not previously
seen
Remand
i.
Absent limiting statutes, courts generally have “the inherent authority to
issue such orders as they deem necessary and prudent to achieve the
orderly and expeditious disposition of cases,” Williams v. Commissioner,
92 T.C. 920, 932 (1989) (citing Roadway Express, Inc. v. Piper, 447 U.S.
752, 764-65 (1980), and quoting Link v. Wabash R.R. Co., 370 U.S. 626,
630-31 (1962)).
ii.
The Tax Court noted in Friday v. Commissioner, 124 T.C. 220, 221-22
(2005), that the Court can remand to an agency if it retains jurisdiction
over the underlying case, such as an Appeals Office does in a CDP
determination.
iii.
The Tax Court can remand in CDP cases when an Appeals officer abused
his discretion in some way. See Med. Practice Solutions, LLC v.
Commissioner, T.C. Memo. 2009-214 (remanding because the Appeals
officer determined to proceed with collection without making the requisite
verifications).
iv.
Tax Court can remand when the Appeals officer did not develop the
record enough for the Court to properly review it. See Hoyle v.
Commissioner, 131 T.C. 197, 204-05 (2008).
v.
Tax Court has remanded where the law changed between the CDP hearing
and the Tax Court trial if that may have affected a taxpayer’s presentation
of his case. Harrell v. Commissioner, T.C. Memo. 2003-271.
vi.
Remand is appropriate in cases where there has been a material change in
a taxpayers’ factual circumstances between the time of the hearing and the
time a case is put on the trial calendar. See Churchill v. Commissioner,
T.C. Memo 2011-182.
(1)
Court can remand a CDP case for consideration of changed
circumstances if it would be helpful, necessary or productive.
vii.
e.
The hearing on remand provides the parties with the opportunity to
complete the initial IRC § 6320 hearing while preserving the taxpayer’s
right to receive judicial review of the ultimate administrative
determination. Kelby v. Commissioner, 130 T.C. 79, 86 (2008); Wadleigh
v. Commissioner, 134 T.C. 280, 299 (2010).
Settlement in “S” Cases
i.
IRM 35.5.2.9 (08-11-2004)
(1)
Purpose of the “S” case procedure is to reduce the time involved in
the preparation, execution, and filing of settlement documents in a
small case.
(2)
Computations: small cases may be settled on the basis of a specific
dollar amount agreed upon by both parties to approximate the
amount that would have been reached if formal computations had
been made.
(3)
Contact with Collection: if it would facilitate the settlement of a
small case, consideration should be given to assisting the petitioner
in making the initial contact with Collection.
(4)
Counsel Settlement Memorandum: The Office of Chief Counsel
encourages brevity in Counsel Settlement Memoranda in small
case.
11.
Post-trial briefing
a.
Time for filing briefs
i.
ii.
b.
Simultaneous briefs
(1)
Opening briefs within 75 days after conclusion of trial
(2)
Answering briefs 45 days thereafter
(3)
The Court’s preference has been for simultaneous briefs
Seriatim briefs
(1)
Opening briefs within 75 days after conclusion of trial
(2)
Answering brief within 45 days thereafter
(3)
Reply brief withing 30 days after the due date of the answering
brief
Points Relied Upon
i.
Centerpiece of the brief
(1)
c.
d.
If reader is not persuaded after reading this section, then brief
should be rewritten or practitioner should consider settlement
Requested Findings of Fact
i.
If written correctly from a properly tried case, the argument section should
be superfluous.
ii.
Should be viewed as the building one detailed brick at a time.
iii.
Should be drawn from the record with very little poetic license.
iv.
Should always be followed by one or more citation to the record
Argument
i.
Carefully structured
ii.
Easy to follow
iii.
Precisely researched
iv.
Should provide the Court with the materials to draft a scholarly opinion in
your favor
v.
Should provide the Court with powerful quotes or literary allusions
vi.
Citations must be precise
vii.
Avoid citing Memorandum decisions where regular opinions are available
viii.
Argument
(1)
Start with affirmative contentions
(2)
Leave rebuttal material to the end or to the reply brief
ix.
Form and neatness are important
x.
Careful thought should be given to how the argument appears on the page
xi.
(1)
Are there visual breaks
(2)
Are critical elements broken into subsections and underscored
Tempo is important
(1)
Do arguments start strong and end strong?
12.
Reply Brief
a.
Reply brief should be drawn only after you have outlined the structure of your
opponent’s argument
b.
Argument in rebuttal should focus upon the critical points in your opponent’s
structure
c.
Remainder of the argument should seek to undermine the Court’s confidence in
your opponent
13.
Volunteer Attorneys/Students
a.
Tax Court Rule 24(a)(5) - Law Student Assistance effective as of May 5, 2011
i.
b.
With the permission of the presiding Judge or Special Trial Judge, and
under the direct supervision of counsel in a case, a law student may assist
such counsel by presenting all or any part of the party's case at a hearing
or trial. In addition, a law student may assist counsel in a case in drafting a
pleading or other document to be filed with the Court. A law student may
not, however, enter an appearance in any case, be recognized as counsel in
a case, or sign a pleading or other document filed with the Court. The
Court may acknowledge the law student assistance.
Student Participation in Court Proceedings Under the Academic Clinical
i.
The Court will permit students who are enrolled in an academic clinic for
credit and in good standing with their school to participate in proceedings
before the Court pursuant to the following procedures:
(1)
lead counsel who intends to request permission for a student/fellow
to participate in proceeding before the Court shall obtain from the
petitioner advance written consent for the student/fellow to
participate in the case. This written consent does not need to be
submitted to the Court;
(2)
when a case is called for trial, lead counsel shall answer the
calendar call, advise the Court whether the case is ready for
hearing or trial, and introduce any student/fellow enrolled in the
academic clinic who seeks permission to participate in the
proceedings;
(3)
If the Court permits a student/fellow to participate in a case upon
compliance with the previous two requirements, lead counsel shall
remain in the courtroom at petitioners’ counsel table at all times
during the hearing or trial of the case. A student/fellow who is
permitted to participate in a case may, at the discretion of the
presiding Judge or Special Trial Judge, present all or any part of a
petitioner’s case at a hearing or trial. A presiding Judge or Special
Trial Judge may at any time exercise discretion to require the
student/fellow to step aside and to require lead counsel to complete
the hearing or trial.
(4)
An academic clinic submitting a pleading, motion, stipulation, or
other paper to the Court for filing may include a statement in the
body of the document including the name of any student/fellow
enrolled in the academic clinic who participated in the preparation
of the document. However, a student/fellow may not sign a
document submitted to the Court for filing.
c.
Help develop record in petitioner’s counsel room
d.
Legal research
e.
Draft subpoenas
f.
Prepare post-trial briefs
g.
i.
Deadlines
ii.
Oversight
Prepare witness/petitioner for trial
i.
Students can receive special admission from the Court to practice
(1)
Admitted attorney requests for special admission
14.
Appeal
a.
No appeal of “S” cases
b.
Venue is based on location of taxpayer’s residence (individuals) or principal place
of business (corporations) when petition was filed.
c.
Taxpayer and the government may agree to appeal to a different circuit. IRC §
7482.
d.
Notice of appeal must be filed within 90 days after entry of decision. IRC § 7483,
Tax Court Rule 190.
e.
IRC § 7482(b)
i.
If an issue does not fall under any of the enumerated categories in IRC §
7482(b)(1)(A) through (F), then the Court of Appeals for the District of
Columbia may review decisions of the Tax Court
(1)
ii.
IRC § 6015 is not included in the enumerated categories
See James Bamberg, A Different Point of Venue: The Plainer Meaning of
Section 7482(b)(1), 61 Tax Lawyer 445 (Winter 2008).
15.
Tax Court Rule 201 - Incorporation of Model Rules
a.
Practitioners before the Court shall carry on their practice in accordance with the
letter and spirit of the Model Rules of Professional Conduct of the American Bar
Association (“ABA”).
16.
Before the Notice of Deficiency
a.
Greenberg’s Express v. Commissioner, 62 T.C. 324 (1974)
i.
b.
(2)
Generally the Court will not look behind the Notice of Deficiency
to examine the evidence used or the propriety of the IRS’s motives
or of the administrative policy or procedure involved in making a
determination. Human Engineering Institute v. Commissioner, 61
T.C. 61, 66 (1973).
The exception to that rule is that on occasion the Court will look behind
the Notice of Deficiency when there is substantial evidence of
unconstitutional conduct on the IRS’s part and the integrity of the judicial
process would be impugned. Efrain T. Suarez v. Commissioner, 58 T.C.
792 (1972).
The Court held that there was no presumption of correctness attached to a
naked notice asserting omitted income, unsupported by any predicate
evidence and the taxpayer is relieved of the burden of going forward with
the evidence.
I.R.C. § 7491
i.
2
The Tax Court was unpersuaded by mere allegation that the
government might destroy evidence supporting the Gambinos’
claims.
Weimerskirch v. Commissioner, 596 F.2d 358 (9th Cir. 1979)
i.
d.
(1)
Efrain T. Suarez v. Commissioner, 58 T.C. 792 (1972)
i.
c.
The petitioners sought an order directing the IRS to produce records
relating to the examination of Thomas and Joseph Gambino by the IRS or
the DOJ in order to show that the examination was not in good faith and
for a legitimate purpose. 2
A condition precedent to shifting the burden of proof is that the taxpayer
has cooperated with reasonable requests by the Secretary for witnesses,
information, documents, meetings, and interviews.
Thomas and Joseph Gambino were the sons of Carlo Gambino, the alleged head of the
alleged Gambino Crime Family.
17.
Filing the Tax Court Petition
a.
b.
Issue:
i.
Can you file a Petition if your client has no defense to the deficiency?
ii.
Can you "require the government to prove its case?"
Answer:
Probably Not.
i.
A petitioner must introduce credible evidence before requiring the
government to prove their findings. Nevertheless, the failure to do so will
generally not result in a penalty under IRC § 6673 unless the court finds
the petitioner is purposely delaying the process with a meritless “tax
protester” claim or known frivolous defenses.
ii.
31 CFR § 10 Practice Before the Internal Revenue Service
(1)
31 U.S.C. § 330. Practice before the Department
(a)
(2)
Under 31 U.S.C. § 330, the Secretary of the Treasury has
the authority to regulate and sanction all representatives
practicing before the Treasury Department, including its
agencies such as the IRS, and the applicable regulations are
codified under 31 CFR § 10.
IRS Circular 230, under the authority of 31 CFR § 10, spells out
the duties and sanctions of all persons representing taxpayers
before the Internal Revenue Service. Representatives, as described
in the text, covers a wide range of tax practitioners including but
not limited to CPA’s, tax attorneys, tax preparers, etc. The rules
spelled out in this section, for the most part, mimic the candor and
professionalism requirements of the ABA rules for Attorney
Conduct.
(a)
Specifically, 31 CFR § 10.20 requires that the
practitioner have actual or good faith belief that the
information provided to the court is accurate and
true, with the following Sec. 10.21 and 10.22
referring to known client omissions and diligence to
checking the accuracy of the information being
presented to the court.
(b)
Sec. 10.23 further states that “a practitioner may not
unreasonably delay the prompt disposition of any
matter before the Internal Revenue Service.” This
sub-section, read in conjunction with the preceding
ones, prohibits a practitioner from putting forth any
matter that he has unreasonably failed check upon
its truth and accuracy as it would cause a delay of
the process.
(3)
iii.
3
31 CFR § 10.50 specifies the types and amount of sanctions that
may be imposed on practitioners for a violation of the above rules
and regulations. Namely, under this authority, the Secretary may,
after notice and opportunity to respond, censure, suspend, or disbar
any practitioner from appearing before the Department. Further,
the Secretary may impose monetary penalties in an amount “not
exceed[ing] the gross income derived (or to be derived) from the
conduct giving rise to the penalty.”3
I.R.C. § 6673 Sanctions and Costs Awarded by Courts
(1)
Sec. 7491 states that the Secretary shall have the burden of proof if
the taxpayer introduces credible evidence with respect to any
factual issues relevant to his tax liability,4 and IRC § 6673 imposes
a penalty of up to $25,000.00 on any taxpayer who institutes or
maintains a proceeding which is frivolous or groundless, or one
brought about primarily for delay.5
(2)
In Coleman v. Commissioner.,6 the Seventh Circuit described a
frivolous petition as one that is “contrary to established law and
unsupported by a reasoned, colorable argument for change in the
law.”7 The court further explained that it uses a subjective bad
faith test as well as an objective “should have known” test for
determining whether the petitioner should be penalized under IRC
§ 6673.8
(3)
In the majority of cases where petitioners have been unable to
produce credible evidence to support their positions, the court has
denied to impose a penalty under I.R.C. § 6673, leaving the
taxpayers with a stern warning instead.
(4)
That was the case in Stewart v. C.I.R.,9 where the court decided
not to impose penalties since at least one of the petitioner’s
arguments was not frivolous. The court nevertheless stated that
“[it] may impose this penalty in the future if he makes frivolous
arguments or institutes proceedings primarily for delay.”10
31 CFR § 10.50(c)(2).
IRC § 7491
5
IRC § 6673
6
Coleman v. Commissioner, 791 F.2d 68 (7th Cir. 1986).
7
Id. at 71.
8
Id. at 72.
9
Stewart v. Commissioner., T.C. Memo. 2005-212.
10
Id.
4
(5)
iv.
Several courts however have penalized petitioners for advancing
“tax protester” claims, or repeated groundless claims, or wholly
frivolous claims for the sole purpose of causing delay. In Sauers v.
C.I.R., the court penalized the petitioner under sec. 6673 for filing
memos with his petition regarding “tax protester” arguments, and
filing several lengthy documents purporting to be motions.11
Similarly in Wetzel v. C.I.R., the court imposed the penalty since
“Petitioner [was] a professional tax return preparer who knew or
should have known that his arguments are frivolous.”12
ABA Rules of Attorney Conduct13
(1)
ABA Model Rule 3.3 – Candor Toward The Tribunal
(a)
A lawyer shall not knowingly:
(i)
c.
Other cases and materials:
i.
I.R.C. § 7491
(1)
Burden shifts where taxpayer produces credible evidence.—
(a)
(2)
11
12
13
make a false statement of fact or law to a tribunal or
fail to correct a false statement of material fact or
law previously made to the tribunal by the lawyer;
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.
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
(c)
in the case of a partnership, corporation, or trust, the
taxpayer is described in section 7430(c)(4)(A)(ii)
Subparagraph (C) shall not apply to any qualified revocable
Sauers v. Commissioner, 771 F.2d 64 (3d Cir. 1985).
Wetzel v. Commissioner, T.C. Memo. 2005-11.
trust (as defined in section 645(b)(1)) with respect to
liability for tax for any taxable year ending after the date of
the decedent's death and before the applicable date (as
defined in section 645(b)(2)).
ii.
I.R.C. § 6673
(1)
Tax Court proceedings.—
(a)
iii.
(ii)
the taxpayer's position in such proceeding is
frivolous or groundless, or
(iii)
the taxpayer unreasonably failed to pursue available
administrative remedies, the Tax Court, in its
decision, may require the taxpayer to pay to the
United States a penalty not in excess of $25,000.
A lawyer shall make reasonable efforts to expedite litigation
consistent with the interests of the client.
Court reprimanding petitioner saying that “[w]hen the costs
incurred by this Court and respondent are taken into consideration,
the maximum damages authorized by the statute do not begin to
indemnify the United States for the expenses which petitioner's
frivolous and groundless action has occasioned.”
Smith v. C.I.R., T.C. Memo. 2000-290.
(1)
vi.
proceedings before it have been instituted or
maintained by the taxpayer primarily for delay,
Abrams v. Commissioner, 82 T.C. 403 (1984).
(1)
v.
(i)
ABA Model Rule 3.2 - Expediting Litigation
(1)
iv.
Procedures instituted primarily for delay, etc.--Whenever it
appears to the Tax Court that—
Concluding that “petitioner's position is frivolous and groundless
and was instituted primarily for delay,” and setting a penalty of
$3,500 under sec. 6673.
Holmes v. C.I.R., T.C. Memo. 2006-80.
(1)
Finding petitioner liable for instituting the procedures primarily for
delay.
18.
Answering the Petition
a.
b.
14
Issue:
Does the government have to disclose in their answer that
documents necessary to calculate deficiency or statute of
limitations are "lost?”
i.
Answer:
Probably Not
ii.
The obligations of federal prosecutors in criminal cases are generally
established by Federal Rules of Criminal Procedure 16 and 26.2, 18
U.S.C. § 3500 (the Jencks Act), Brady v. Maryland, 373 U.S. 83 (1963),
and Giglio v. United States, 405 U.S. 150 (1972). Brady, Jencks and
Giglio do not apply in civil cases.
Are there any civil counterparts to Brady, Jencks and Giglio.
i.
Answer:
ii.
Probably Not. There is considerable debate over the standards applicable
to government agencies in a civil case.14
iii.
The law is evolving. As explained in Garavaglia v. C.I.R.,15 however,
there is trend toward viewing ethical obligations that go to the merits of a
taxpayer’s claim as opposed to procedural as applying in civil cases
brought by the government.
iv.
IRM 13.1.15/ RRA98 § 1203 Employee Misconduct Allegation
(1)
Internal sources, taxpayers, or third parties may refer improper
behavior by an IRS agent to his manager or the Human Capital
Office, Employee Conduct and Compliance Office (ECCO)
pursuant to RRA98 § 1203 by filling a Form 12217.
(2)
Sec. 1203 covers the following types of IRS agent and employee
misconduct:
(a)
False statements under oath;
(b)
Falsification of documents;
(c)
Assault or battery;
(d)
Misuse of IRC § 6103 (Disclosure);
It is generally agreed that mere negligence, without more, is not grounds for a finding of
Due Process violation. Arizona v. Youngblood, 488 U.S. 51, 58, 109 S.Ct. 333, 102 L.Ed.2d
281 (1988).
15
. Garavaglia v. C.I.R., T.C. Memo. 2011-228. aff'd, 2013 WL 1458024 (6th Cir. Apr. 11,
2013).
v.
16
(e)
Threat of Audit;
(f)
Seizure violations;
(g)
Infringement of taxpayer’s constitutional rights;
(h)
Harassment/Retaliation;
(i)
Discrimination;
(j)
Failure to file; or
(k)
Understatement of liability.
Brady Rule Consideration
(1)
Most courts have rejected the application of Brady to civil and
administrative hearings. In Mister Disc. Stockbrokers, Inc. v.
S.E.C., the Seventh Circuit rejected petitioner’s Brady based
arguments.16 First, the court noted that the Federal Rules of Civil
and Criminal Procedure are not applicable in administrative
hearings, and that each agency can create their own discovery rules
so long as they insure that fundamental fairness is met as required
for due process.17
(2)
Also, the court pointed out that administrative proceedings do not
warrant such extensive discovery rules as criminal proceedings
since the possible penalties are not as severe, even if they are
“quasi-criminal” as described by the petitioner in the case.18
(3)
In U.S. ex rel. (Redacted) v. (Redacted), the court once again
pointed to the fundamentally different consequences of a civil case
from a criminal sanction as the reason for denying a Brady-like
discovery request.19
(4)
In Tandon v. C.I.R., the application of the Brady rule was denied
simply because “the [c]ircuit has never applied the Brady rule to a
civil proceeding for determining the amount of one's tax
liability.”20
(5)
Only a few courts have dared to rule that the Brady rule should
also apply to civil and administrative hearings, the most notable
being the Southern District Court of New York in Sperry &
Mister Disc. Stockbrokers, Inc. v. S.E.C., 768 F.2d 875 (7th Cir. 1985)
Id. at 878.
18
Id.
19
U.S. ex rel. (Redacted) v. (Redacted), 209 F.R.D. 475, 482 (D. Utah 2001)
20
Tandon v. C.I.R., 210 F.3d 372 (6th Cir. 2000)
17
Hutchinson Co. v. FTC.21
c.
(6)
In Sperry, the court said that “the essentials of due process at the
administrative level require similar disclosures by the agency
where consistent with the public interest. In civil actions, also, the
ultimate objective is not that Government “shall win a case, but
that justice shall be done.”22
(7)
Similarly, in Equal Employment Opportunity Comm'n v. Los
Alamos Constructors, Inc.,23 ruling on an appeal from an
administrative hearing, the court firmly believed that “the
responsibilities of government lawyers [are] fully applicable to
government counsel in civil cases.”24 This was based on the idea
that U.S. Attorneys are representatives of a sovereignty and thus
should be impartial in all dealings.25 This line of argument has
gained little traction in recent years, as civil and administrative
courts seem to favor judicial economy.
Other cases and materials:
i.
Ferguson v. Roper, 400 F.3d 635 (8th Cir. 2005).
(1)
ii.
Dixon v. C.I.R., 316 F.3d 1041 (9th Cir. 2003).
(1)
iii.
Court imposed sanctions upon Respondents in tax Court for
manipulating witnesses and destroying or hiding exculpatory
evidence stating that “When we conclude that the integrity of the
judicial process has been harmed, however, and the fraud rises to
the level of “an unconscionable plan or scheme which is designed
to improperly influence the court in its decisions,” we not only can
act, we should.”
N.L.R.B. v. Nueva Eng'g, Inc., 761 F.2d 961 (4th Cir. 1985).
(1)
21
Court did not find a Due Process violation in the prosecution’s loss
of potentially exculpatory evidence “[a]bsent a showing of bad
faith on the part of the police or prosecutor,” which petitioner
could not provide.
On appeal from an administrative hearing, court finds Brady rule
request meritless stating that “an action for violations of the
National Labor Relations Act is civil in nature, does not involve
Sperry & Hutchinson Co. v. FTC, 256 F. Supp. 136 (S.D.N.Y. 1966).
Id. at 142.
23
Equal Employment Opportunity Comm'n v. Los Alamos Constructors, Inc., 382 F. Supp.
1373, 1383 (D.N.M. 1974)
24
Id.
25
Id.
22
potential incarceration and violation of the Act does not carry with
it the stigma of a criminal conviction.”
iv.
Demjanjuk v. Petrovsky, 10 F.3d 338 (6th Cir. 1993).
(1)
v.
Justin Goetz, Hold Fast the Keys to the Kingdom: Federal Administrative
Agencies and the Need for Brady Disclosure, 95 Minn. L. Rev. 1424,
1435-36 (2011).
(1)
vi.
Court finding in favor of applying the Brady rule considering that
“the consequences of denaturalization and extradition [are] equal
or exceed those of most criminal convictions.”
Article explores the role of Brady/Giglio in administrative court
hearings by comparing several agencies’ procedures with the
Federal Rules, ultimately declaring “this results in two separate
standards for civil defendants--greater protections in Article III
courts and lesser protections in the Article I courts hitherto profiled
in addition to the substantial differences in due process protections
between Brady criminal defendants and civil enforcement
defendants.”
ABA Model Rule 3.3 – Candor Toward The Tribunal
(1)
(2)
A lawyer shall not knowingly:
(a)
make a false statement of fact or law to a tribunal or fail to
correct a false statement of material fact or law previously
made to the tribunal by the lawyer;
(b)
fail to disclose to the tribunal legal authority in the
controlling jurisdiction known to the lawyer to be directly
adverse to the position of the client and not disclosed by
opposing counsel; or
(c)
offer evidence that the lawyer knows to be false. If a
lawyer, the lawyer’s client, or a witness called by the
lawyer, has offered material evidence and the lawyer comes
to know of its falsity, the lawyer shall take reasonable
remedial measures, including, if necessary, disclosure to
the tribunal. A lawyer may refuse to offer evidence, other
than the testimony of a defendant in a criminal matter, that
the lawyer reasonably believes is false.
A lawyer who represents a client in an adjudicative proceeding and
who knows that a person intends to engage, is engaging or has
engaged in criminal or fraudulent conduct related to the
proceeding shall take reasonable remedial measures, including, if
necessary, disclosure to the tribunal.
vii.
(3)
The duties stated in paragraphs (a) and (b) continue to the
conclusion of the proceeding, and apply even if compliance
requires disclosure of information otherwise protected by Rule 1.6.
(4)
In an ex parte proceeding, a lawyer shall inform the tribunal of all
material facts known to the lawyer that will enable the tribunal to
make an informed decision, whether or not the facts are adverse.
ABA Model Rule 3.4 – Fairness to Opposing Party and Counsel
(1)
A lawyer shall not:
(i)
unlawfully obstruct another party’s access to
evidence or unlawfully alter, destroy or conceal a
document or other material having potential
evidentiary value. A lawyer shall not counsel or
assist another person to do any such act;
(ii)
falsify evidence, counsel or assist a witness to
testify falsely, or offer an inducement to a witness
that is prohibited by law;
(iii)
knowingly disobey an obligation under the rules of
a tribunal, except for an open refusal based on an
assertion that no valid obligation exists;
(iv)
in pretrial procedure, make a frivolous discovery
request or fail to make reasonably diligent effort to
comply with a legally proper discovery request by
an opposing party;
(v)
in trial, allude to any matter that the lawyer does not
reasonably believe is relevant or that will not be
supported by admissible evidence, assert personal
knowledge of facts in issue except when testifying
as a witness, or state a personal opinion as to the
justness of a cause, the credibility of a witness, the
culpability of a civil litigant or the guilt or
innocence of an accused; or
(vi)
request a person other than a client to refrain from
voluntarily giving relevant information to another
party unless:
1)
the person is a relative or an employee or
other agent of a client; and
2)
the lawyer reasonably believes that the
person’s interests will not be adversely
affected by refraining from giving such
information.
viii.
Tax Court Bill of Rights II (“TBOR II”)
(1)
TBOR II defines three elements of misconduct in IRM § 13.1.15.2
(01-06-2006):
(a)
An IRS employee violated a law, regulation, or rule of
conduct;
(b)
An IRS system failed to function properly or within proper
time frames; or
(c)
An IRS employee treated a taxpayer inappropriately in the
course of official business. For example, rudeness, over
zealousness, excessive aggressiveness, discriminatory
treatment, and intimidation.
19.
Backdating - a/k/a Temporal Modifications of documents
a.
Not necessarily illegal or unethical if the document seeks to be effective as of a
prior date. A document may be backdated to memorialize past action or intent.
The threshold question is whether the event occurred on the backdate or whether
the event occurred on another date.
b.
Backdating that fabricates
i.
c.
Examples:
(1)
U.S. Projector & Elec. Corp. v. Commissioner, T.C. Memo. 1969549 for the finding that the act of executing rescission agreement
fixed petitioner’s liability to return funds previously received, the
event which determined the timing of a tax deduction. The back
dating was the event that fixed the resulting tax treatment, not
memorializing it.
(2)
United States v. Wilson, 118 F.3d 228 (4th Cir. 1997) involved an
attorney who sought to conceal his client’s assets from the IRS by
backdating promissory notes to make it appear that the client was
obligated to repay certain unconditionally received amounts.
(3)
Medieval Attraction N.V. v. Commissioner, T.C. Memo. 1996-455
involved an effort to claim tax deductions by backdating
documents to make it appear that intangible property had been
transferred to a related party so that payments to the related party
could be treated as tax deductible royalties.
For a further discussion of backdating please see Backdating: Legal and Ethical
Consequences of Temporal Modifications Tax Update XXXI by Robert R.
Keatinge. A copy of the article can be found at
http://www.sdbar.org/CLE/Keatinge%20-%20Backdating%20SD.pdf.
20.
Other Taxpayers' Files (Offensive and Defensive Use of sec. 6103)
a.
b.
Issue:
i.
Under what circumstances can the government use information in another
taxpayer's files against a petitioner in Tax Court?
ii.
Under what circumstances can the petitioner in Tax Court access
information in another taxpayer's file?
iii.
Prior reports of IRS agents acting as government experts.
Answer:
i.
The analysis of I.R.C. § 6103 inherently begins with 5 U.S.C. § 552,
commonly known as the Freedom of Information Act (FOIA). Requests
for tax returns and other documents held by Federal Agencies are done
under FOIA and thus, all of its exemptions apply. Of particular interest to
tax petitioners are Exemptions 3 and 5. Under Exemption 3, the
government may prevent the release of records that are “specifically
exempted from disclosure by statute.”26 In this light, sec. 6103 becomes
relevant in that it requires that “returns and return information” remain
confidential unless otherwise authorized by Title 26.27 Exemption 5
protects inter-or intra-agency letters or memoranda “which would not be
available by law to a party ... in litigation with the agency.”28
ii.
The government may access information in another taxpayers return if the
information fits within the parameters of sec. 6103(h)(4), allowing
disclosure of a return “(B) if the treatment of an item reflected on such
return is directly related to the resolution of an issue in the proceeding; (C)
if such return or return information directly relates to a transactional
relationship between a person who is a party to the proceeding and the
taxpayer which directly affects the resolution of an issue in the
proceeding.”29 In In re U.S., the court, following a lengthy statutory deconstruction analysis, held that “directly related” language should be read
narrowly, saying that “[t]he disclosure of a third party return in a tax
proceeding will be subject to [an items-test], except that such items ...
must have a direct relationship to the resolution of an issue of the
taxpayer's liability.”30
26
5 U.S.C. § 552(b)(3)
I.R.C. § 6103(a)
28
5 U.S.C. § 552(b)(5)
29
I.R.C. § 6103(h)(4)
27
30
In re U.S., 669 F.3d 1333, 1338 (Fed. Cir. 2012).
(1)
iii.
c.
IRS reports have been generally held as attorney-work product or as part
of the agency’s “deliberative process” and privileged under FOIA
Exemption 5.31 The protection of reports as “deliberative process” is
designed to prevent the release of inter or intra-agency communication
made as part of the government’s decision and policy making process.32
“A document is predecisional if it was prepared in order to assist an
agency decisionmaker in arriving at his decision, rather than to support a
decision already made.”33
Other cases and materials:
i.
ABA Model Rule 3.4
(1)
ii.
21.
See above
ABA Model Rule 4.4 Respect For Rights Of Third Persons
(1)
In representing a client, a lawyer shall not use means that have no
substantial purpose other than to embarrass, delay, or burden a
third person, or use methods of obtaining evidence that violate the
legal rights of such a person.
(2)
A lawyer who receives a document or electronically stored
information relating to the representation of the lawyer's client and
knows or reasonably should know that the document or
electronically stored information was inadvertently sent shall
promptly notify the sender.
What third-party contacts must the government disclose? Does I.R.C. § 7602 apply in
Tax Court?
a.
The Tax Court in Westreco, Inc. v. Commissioner, T.C. Memo. 1990-501:
i.
31
Violation of Sec. 6103 disclosure rules is among the listed grounds
for a Sec. 1203 Complaint against an IRS Agent/ employee.
Counsel for Respondent was actively involved in an audit of the taxpayer
for years subsequent to what the Court was considering. During the audit
process counsel for Respondent issued administrative summonses for
documents and testimony of the taxpayers’ employees under I.R.C. §
7602. The issues before the Court and with the audit were substantially
similar.
Life Extension Found., Inc. v. I.R.S., CIV. 12-280 RJL, 2013 WL 171086 (D.D.C. Jan. 16,
2013).
32
Id.
33
Id.
b.
(1)
The Tax Court held that counsel’s participation in the audit
undermined the Tax Court’s rules of discovery.
(2)
The Tax Court was also concerned that the stipulation process
would be made more difficult and greatly delayed while
subsequent years’ summons is pursued.
(3)
Respondent would also be unable to provide a full and timely
response to the taxpayer’s discovery request. Respondent’s
litigating posture would be continually be delayed and would
depend on the progress of the subsequent year examination.
See also Mary Kay Ash v. Commissioner, 96 T.C. 459 (1991).
i.
The Court found that summons issued before the filing of petition was not
subject to Westreco restrictions.
ii.
The Court was also unwilling to restrict information gathered through
issuance of summons before the petition was filed but resulted in
information being gathered post-petition. The Court noted that it was
unable to enforce its discovery rules prior to the filing of a petition.
iii.
The opinion was reviewed by the Court with Judges Nims, Korner,
Shields, Hamblen, Cohen, Clapp, Gerber, Jacobs, Parr, Wells, Colvin, and
Halpern agreeing with the majority.
22.
Protective Orders
a.
Excessive Discovery
i.
b.
The Tax Court may order a protective order where the IRS engages in
inappropriate and excessive formal discovery without any conference
between the parties.34
Protective orders from other courts
i.
The Tax Court has allowed the Commissioner access to documents in
another case that were subject to a protective order by the other court.35
Schneider Interests LP v. Commissioner, 119 T.C. 151 (2002).
Melea Ltd v. Commissioner, 118 T.C. 218 (2002)(corporation compelled to produce
deposition transcripts from a patent infringement case that were subject to a protective order
in that case; however; the Tax Court continued the terms of protection granted by the patent
trial court to the information allowed to the Commissioner).
34
35
23.
Communication with Persons Represented by Counsel
a.
Can the Government contact employees of the Taxpayer?
i.
ABA Model Rule of Professional Conduct 4.2:
(1)
In representing a client, a lawyer shall not communicate about the
subject of the representation with a person the lawyer knows to be
represented by another lawyer in the matter, unless the lawyer has
the consent of the other lawyer or is authorized to do so by law or
a court order.
(2)
Comment [7] provides:
(a)
In the case of a represented organization, this Rule
prohibits communications with a constituent of the
organization who supervises, directs or regularly consults
with the organization’s lawyer concerning the matter or has
authority to obligate the organization with respect to the
matter or whose act or omission in connection with the
matter may be imputed to the organization for purposes of
civil or criminal liability. Consent of the organization’s
lawyer is not required for communication with a former
constituent. If a constituent of the organization is
represented in the matter by his or her own counsel, the
consent by that counsel to a communication will be
sufficient for purposes of this Rule. Compare Rule 3.4(f).
In communicating with a current or former constituent of
an organization, a lawyer must not use methods of
obtaining evidence that violate the legal rights of the
organization. See Rule 4.4.
(3)
Model Rule 4.2 advances the well recognized public policy
favoring the preservation and protection of the attorney-client
relationship. See Cram v. Lamson & Sessions Co., 148 F.R.D. 259,
260 (S.D.Iowa 1993).
(4)
The Tax Court in FU Investment Co., Ltd. v. Commissioner, 104
T.C. 408 (1995) was asked to address whether the protection of
Model Rule 4.2 extended to former employees of a
corporation/petitioner.
(a)
The Court in holding that Rule 4.2 does not extend to
former employees, cited the ABA Standing Committee on
Ethics and Professional Responsibility, Formal Opinion 91359 in which the ABA takes the view that Rule 4.2 should
not be interpreted to prohibit ex-parte communications with
former employees.
b.
The Court was cautious in that they recognized that
circumstances may arise where certain precautions
(including a narrowly drawn protective order) may be
warranted to ensure that such ex-parte contacts are not
simply a forum for counsel to seek information protected
by the attorney-client privilege.
(c)
The Court advised Respondent must advise former
employees that respondent and petitioner are adverse
parties to a proceeding and that the attorney must conduct
the interview in conformity with Model Rule 4.3 (Dealing
with Unrepresented Persons).
Henthorn Motions
i.
U.S. v. Henthorn, 931 F.2d 29 (9th Cir. 1991) provides that, in the context
of a criminal case, the government must disclose information favorable to
the defense that meets the appropriate standard of materiality.
ii.
IRM § 11.3.35.8.1 (01-01-2006)
iii.
(1)
Requests and demands for testimony and/or production of
personnel and payroll records in private litigation or administrative
proceedings is coordinated by the IRS Disclosure Office with the
Transactional Processing Center (TPC).
(2)
The Office of Personnel Management regulations require that
subpoenas for personnel records must be approved by a judge or
magistrate of a court of competent jurisdiction in order to meet the
court order exception in the Privacy Act (5 U.S.C. § 552a(b)(11)).
5 U.S.C. § 552a
(1)
iv.
36
(b)
No agency shall disclose any record which is contained in a system
of records by any means of communication to any person, or to
another agency, except pursuant to a written request by, or with the
prior written consent of, the individual to whom the record
pertains, unless disclosure of the record would be pursuant to the
order of a court of competent jurisdiction.36
FOIA Exemption 6
(1)
5 U.S.C. 552(b)(6) generally prohibits the disclosure of personnel
and medical files and similar files the disclosure of which would
constitute a clearly unwarranted invasion of privacy.
(2)
IRS Employee Time sheets
5. U.S.C. 552a(b)(11).
(a)
37
Federal Courts have held that disclosure of an IRS
employee’s time sheets, which are “similar” to personnel
files, would constitute a clearly unwarranted invasion of
personal privacy.37
Berger v. I.R.S., 487 F.Supp.2d 482 (D.N.J. 2007).
24.
Immunizing Witnesses
a.
What efforts can and should the government take to immunize witnesses needed
by a taxpayer?
b.
In the context of criminal cases 18 U.S.C. § 6002 grants prosecutors broad
discretion to grant immunity to a witness, but grants no right to defendant to do
the same.
i.
The Third Circuit has recognized a judicial authority to grant immunity
“when it is found that a potential defense witness can offer testimony
which is clearly exculpatory and essential to the defense case and when
the government has not strong interest in withholding immunity. See
Gov’t of V.I. v. Smith, 615 F.2d 964, 974 (3d Cir. 1980).
ii.
United States v. Burke, 425 F.3d 400 (7th Cir. 2005) recognizes the
principle that, although the court cannot order the government to
immunize a defense witness, courts can dismiss an indictment where the
prosecutor’s refusal to grant immunity has violated the defendant’s right
to due process.
Faculty Biographies
FRANK AGOSTINO, ESQ.
President, Agostino & Associates, P.C.
AREAS OF EMPHASIS
Civil Tax Litigation
Criminal Tax Litigation
IRS and State Administrative Proceedings
Trusts and Estates Planning and Litigation
EDUCATION
L.L.M., New York University, 1981
J.D., New York Law School, cum laude, 1982
B.A., The City College of New York, cum laude, 1981
Mr. Agostino is the President of Agostino & Associates, PC, a twelve attorney firm in
Hackensack, New Jersey. Mr. Agostino concentrates his practice in criminal and civil tax matters
before federal and state taxing authorities. He was an attorney with the Internal Revenue Service
District Counsel Office in Springfield, Illinois and Newark, New Jersey. He also served as a
Special Assistant United States Attorney concentrating in criminal tax prosecution. He has been
an adjunct professor on tax controversy at Seton Hall University and Rutgers University. He
frequently lectures on tax controversy and litigation matters.
CONTACT INFORMATION
Email: Fagostino@agostinolaw.com
Tel. 201.488.5400 ext. 107
BAR ADMISSIONS
New York
New Jersey
U.S. Tax Court
U.S. District Court, District of New Jersey
U.S. Court of Appeals, Second Circuit
U.S. Court of Appeals, Third Circuit
U.S. Court of Appeals, Federal Circuit
U.S. Court of Federal Claims
PUBLICATIONS
“Tweel and the Taxpayer’s Affirmative Duty to Ask the Government What It Intends to Do with
the Information Provided,” Journal of Tax Practice & Procedure, August-September 2012.
Book Review of “A Practitioner’s Guide to Innocent Spouse Relief,” Tax Notes, June 20, 2011
PROFESSIONAL ACTIVITIES
American Bar Association (Tax Section)
New York County Lawyers Association
American College of Tax Counsel
Federal Bar Association
Judge Colvin
Page 1 of 1
Judge John O. Colvin
Chambers Telephone Number:
202-521-0662
Biography:
Judge. b. Ohio. A.B., University of Missouri, 1968; J.D., 1971; LL.M., Taxation, Georgetown University Law
Center, 1978. During college and law school, employed by Niedner, Niedner, Nack and Bodeux, St. Charles,
MO; Missouri Attorney General John C. Danforth and Missouri State Representative Richard C. Marshall,
Jefferson City, MO; and U.S. Senator Mark O. Hatfield and Congressman Thomas B. Curtis, Washington, DC.
Admitted to practice law in Missouri, 1971, and District of Columbia, 1974. Office of the Chief Counsel, U.S.
Coast Guard, Washington, D.C., 1971-75. Served as Tax Counsel, Senator Bob Packwood, 1975-84; Chief
Counsel, 1985-87, and Chief Minority Counsel, 1987-88, U.S. Senate Finance Committee; Officer, Tax
Section, Federal Bar Association, since 1978; Adjunct Professor of Law, Georgetown University Law Center,
since 1987. Numerous civic and community activities. Appointed by President Reagan as Judge, United States
Tax Court, on September 1, 1988, for a term ending August 31, 2003. Reappointed on August 12, 2004, for a
term ending August 11, 2019. Elected as Chief Judge for two-year terms effective June 1, 2006, June 1,
2008, and June 1, 2010; and for the interim period March 8 through August 6, 2013.
Last updated: August 8, 2013
http://www.ustaxcourt.gov/judges/colvin.htm
9/16/2013
Monica E. Koch, Associate Area Counsel, Long Island, NY
•
Ms. Koch graduated St. John's University in 1984 with a B.A. (magna cum laude)
in Government, and double minor in German and Business. She attended St.
John's University School of Law and received her J.D. in 1987. After a 21 year
stint as a field attorney actively involved in Tax Court litigation, she was promoted
to Associate Area Counsel for the Long Island Office. She is the recipient of the
1995 Attorney of the Year Award and the 2002 “Cube Award” for significant Tax
Court Litigation, and has successfully litigated several fraud cases. She is an
adjunct professor at LIU-Post, teaching Tax Practice and Procedure. Her article:
”IRC 6651(f) v. IRC 6663 – Same Badges, Different Application”, was published
in the QuarterlyFraud Digest (Nov. 2006).
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