morning your honor the police court i'm john mcdonnell i'm here for the appellant interior glass and and i need to start today with the last development in this appeal which is the larsen case which actually relates to the last item i raised in my opening brief which is the question of whether the citizen is entitle to a hearing a due process hearing prior to collection of the tax penalty and as you know from the briefs our position is the court sho adhere to this court's decision in jolly versus commissioner apply the tests established by the supreme court in the matthews case and weigh whether or not the competing interests should be evaluated and most critically determine whether there is a substantial risk of a brony as deprivation that is the key in all of those cases the balancing usually comes out even so the question is is there a risk of erroneous deprivation now the government wants you to follow the larsons case they say point blank that there should never be any pre collapse in hearing on section page you have an opportunity if for some kind of a pre depravation administrative hearing don't you know why do you say that well i mean maybe you don't think it's that great of let me move on that is a very important issue because if this court for some reason is inclined to follow the larsen case at least at least break away from that notion because a larson cases the first case that is ever suggested that somehow an appeals conference is the equivalent of something you would have in the tax court or in the district court or anywhere else and as i pointed out in my opinion in my reply brief and appeals conference is really just a settlement conference i've been through dozens they're very productive you get to chat back and forth but it's nowhere near an adjudicative process that it doesn't have to be that's the concept under that i agree it's flexible but it does require an independent notice and an opportunity to be heard notice an opportunity to be heard by someone who is going to make an impartial decision and value added that last part well that language in matthew by a partial individual with the authority to make a i want you i want you to give me the language point me to a paid a case on a page that includes within the concept of due process and impartial adjudicator who can make a but i don't i'm not sure that i've read a case that says in order to satisfy due process there has to be an adjudicatory process it's just in my mind that the defer this that i understand it's  pushed is there are obviously many many instances where the process is reviewed by in a ministry to the judge and the minister the ministry to judge works for the agency but it is a judicial type of  you look at a lot of other cases in this case we're dealing with forty thousand dollars of penalties that could be one hundred thousand dollars on individuals two hundred thousand could be eight hundred thousand for the four years and it's some point as in the larsen case the number that's put into the letter is so high that it's never going to be able to get paid that was sixty eight million dollars and i want to point out all that it takes is some group manager as in this which is the very relatively low level of the i r s signing that letter there doesn't have to be anything else all there has to be is that letter that's the original that's the initial determination that's not the final determination and so you have opportunities to challenge that and that's what due process is all about and i want to focus on the you know opportunity that the court has brought up which is this appeals conference and as i pointed out in this case there the appeals conference would have been a sham because there's and i and i can tell you in this case the appeals conference has no jurisdiction over these penalties it's right there in the internal revenue manual that i cited they cannot consider abusive abusive tax avoidance transactions and the penalties in this case are exactly those penalties that the appeals conference cannot determine so it would not have been adjudicated we would have walked in as i walked into mr gates is appeals conference and that the the conferee would say i can't talk about the penalties let's talk about the tax liability in the tax court that's not a due process hearing and i do you really need to emphasize that larson is the first case that has said anything like that the cases that larsen cited the cases cited by the government the country homes case the killer tank case the iambs case those all of all of the question of whether you get a second bite at the apple in the collection due process but actually we had a pretty consistent line of cases that said in the tax context in particular that it was the post deprivation review processes is robust enough and here it is you had a fall to no hearing in the district court and now you're before us on that that that's pretty much always sufficient tax content i thought that's not just larson's not like larsen is on but no no radical innovation larson is the only case that says the appeals conference is a sufficient pre collection era process that's what you are absolutely correct and i think the government has cited probably only half the cases that stand for the proposition you've said which go back oh i'd say eighty years ok to cases have  said when the when the government needs to collect the tax then the need of the government to collect a tax overrides the importance of due process a flexible standard and in that situation the post deprivation hearing is enough ok i think when we get to the jolly case which is a penalty case and the other major penalty case is the con case that jolly followed they say that in the context of a tax penalty the rules are different the government doesn't need to collect huge tax penalties they need to collect taxes and in fact i was just calculating what paul mann affords going to show he's got fifteen million dollars of fraud it's going to be seventy eight million dollars of taxes and about five million dollars of penalties that he hasn't paid yet he's not going to pay it any time soon he's going to have it on appeal those five million dollars penalties are going to be so they don't that money all right but that's so that's your position is that the rule that's established for collection tax is just should not apply at all in the context of penalties i believe so your honor i think that is what the jolly case says well it's different and i don't read it quite that broadly but  i guess i don't even buy i'm not even sure i buy that proposition why is it that especially for penalties i grant you a few hundred thousand dollars that's real money certainly to me maybe to you as well but why isn't it enough that you can always you bring the action you prevail you get back the money i think with interest right why isn't that sufficient protection on the back well again the deprivation of property up front taking the money i mean we go back to many problem comes in these kind of tax penalty cases where six eight hundred thousand dollars you can't pay that i mean to reach people i couldn't pay it i i doubt that anyone in this courtroom could just write a check tomorrow for eight hundred thousand dollars well i don't know i mean the penalties relative to the you know the tax benefits that were trying to be captured here seem to me to be quite modest no while the tax benefit was a fifty five thousand dollars deduction translates even at the higher forty percent rate twenty to twenty four thousand dollars so ten thousand dollars penalty yeah it's it's  appropriate i don't dispute that i mean you're right that we have cases that say for example i'm thinking of you know indigent folks who are dependent upon some government benefit and if they are deprived of that on the front end without a full probation hearing the loss of that benefit to them is so devastating that you know they'll be destitute homeless whatever i mean i understand that it just seems like in the tax valley context a really that's what we're talking about you're saying that the amount of money the government's trying to extract you know before you get the full dyno hearing is so exorbitant that your client is you know clients in your client's shoes would be left destitute and we should be that concern yes your honor i think that's clear in the jolly case because it was seventy five dollars but the jolly case said that was a basically a small amount and the risk of deprivation was nonexistent i think every case involving a tax penalty requires the court to determine if there's a stay at substantial risk of a rony a step of ation even if it's only temporary i'm running low on time here your honor i'd like to reserve if i could that was raised in the opening argument by posting counsel we think that the statutory scheme definitely satisfies do process due process is flexible and it calls for such procedural safeguards as the situation requires and in the tax context it's been well settled since the phillips case decided by the supreme court in the thirty's that post deprivation availability availability of a refund suit satisfies due process without respect to the taxes themselves that time fifty percent of the underpayment it's now seventy five percent of the underpayment was a remedial sanction that just allowed the government to recoup the extra costs failure to report a listed transaction but upon some counsel do you disagree with the polls in counsel's representation that under the appropriate statute the appeals conference does not have a to negotiate or saddle the amount of the penalty imposed i disagree with opposing counsel and we think that that the availability of appeals conference is a significant protection that goes a long way toward satisfying due process could the appeals conference just the penalties that are imposed under the statute at issue here yes they could settle them  would authorize the seven minute of those penalties well i think there is a provision i'm not sure but i think there is a provision in the internal revenue code creating the i r s office of appeals as an independent component within the i r s and so they have authority to compromise cases very broad authority even if the statute it ishi says that the penalties can't negotiated well the throughout the internal revenue service a case can be settled for doubt as to liability doubt as to collect ability or to promote effective tax administration so those are pretty broad parameters i do want to mention that at the time we were briefing this case we thought that the taxpayer had not requested an appeals conference we pointed out in our brief that they didn't put anything in the record about requesting one in the reply brief the posing counsel points out that discovery from the taxpayers account shows a request and i just wanted to mention that in fairness to the government if if that had been developed we would of like to point out that  although an appeals concerts generally available guidelines in the internal revenue manual were strictly restrict its availability if the statute of limitations on assessment is soon going to expire and so i think we asked the statute was going to expire for some of the at least one of the periods in suit and so they were requested you know if you want to conference availability or saleability an appeals conference prior to assessment there are others other opportunities for due process and particularly in connection with  taxpayer is granted a conference with the i r s office of appeals and the results of that conference can be appealed to the tax court and reviewed by a us court of appeals the existence or amount of a liability can be in issue if the taxpayer has not had a prior opportunity to contest the liability itself and a prior opportunity would include having had an appeals conference now here there's a question whether if the only way you can get one is to sign a consent to extend the statue of limitations with that count for purposes of getting an appeals conference contesting the liability in a collection due process suit but if it does not come out then that would be another opportunity an appeals conference and if the taxpayer didn't want to you know didn't want to come forward and actually pay the tax and file a claim for a refund and then a suit the government could also bring a collection suit but that again would be just like a refund suit that would be a complete opportunity to contest the liability for the tax so this court most recently in jolly before this the collection due process statutes were enacted held that the availability of a refund suit satisfy due process and where  so unless the court has any other questions cancel it seems that the average s letter discussing the conference with the appeals office said that the committee commissioner can determine whether to rethink and the penalty under i or c section six seven zero seven eight for transactions other then listed transaction and this is precisely the type of transaction that's at issue here  also what good would the appeals conference actually do well in the statute this is usually it can't you know i'm i'm looking for the statutory the appeals in an appeals conference they could still settle it depending on doubt as to liability and that would go to whether this notice whether the transaction here was similar enough to the that that means that the commissioner has to assert that assert the liability and if there is a list a transaction and it's similar enough and they don't it's a penalty that the discretion to rescind it is is limited but it could still be settled in an appeals conference your honors we have devoted all of our time to what was essentially five percent of my brief and maybe five percent of their brief in all fairness to the government i think i'm obligated to submit the rest of my arguments about substantial similarity in passing all four tests on the statements in my reply brief and i ask you i think that's fair i think you're right but the arguments are well laid out in both both for which i think on the due process issue s your you heard government counsel say well you know what if you if you really want some kind of a pre depravation review by a court just don't pay it and make them come after you and that i guess that was an option but i soon there's some reason why most people pay the of these letters always say you have an opportunity for an appeals conference now we can either say yes or no if we say no then we've squandered our opportunity and when we get to the collection due process stage they do not have jurisdiction to consider the correctness of the liability only whether the procedures have been correctly followed with the levy in the lean proceedings so once that appeals conference an opportunity goes out whether we say yes or whether we say no there is never going to be that second opportunity to go after or as they try to collect the how you know sell the house and levy on the bank account etc and that's that's a fundamental flaw in the government's argument there will never ever in any of these cases ever be a real collection due process hearing because they they don't have jurisdiction on that and as a davis case cited at twenty eight i'm a page twenty eight points out the tax court can't look at it either once the appeals conference as broad as she wants to portray it there are a lot of limitations including the limitation in this case so i hope i've been able to resolve this your honor and i i hope you see clearer to follow the jolly case and apply those rules